Consumer Advocates Fighting Against ‘Legal Loan Sharking’

Payday lenders face regulation, congressional scrutiny

Setting Standards

Of the 35 states that allow the loans many, including some local governments, are taking measures to regulate the industry:

Arkansas: Almost all payday lending has been halted in Arkansas as a result of public enforcement by the Attorney General Dustin McDaniel and private litigation. In March, McDaniel sent letters to 156 licensed payday lenders in the state demanding they cease illegal lending practices, essentially bringing the industry to its knees within Arkansas.

South Carolina: In June, lawmakers enacted the first piece of legislation regulating the state’s $155 million-a-year payday industry. The law requires the creation of a database to monitor borrowers’ lending activities; requires the industry to let customers go into an extended payment plan if they cannot meet payment deadlines without incurring any extra fees; restricts payday loans to one loan up to $550 at a time; and imposes a waiting period of one day between loans for the first seven and two days for additional loans.

Kentucky: In March, Gov. Steve Beshear signed into law a bill establishing a statewide database that tracks all payday loan amounts, dates, and borrowers. Beshear expects the system to lead to a 25% to 30% reduction in lending. The database is to ensure borrowers do not have out more than two loans at a time. A 10-year moratorium on new lenders opening in the state is also part of the bill.

West Virginia: Though payday loans are illegal in West Virginia, the state is looking to quash online lending. The attorney general’s office is suing seven Internet lenders for making or collecting online payday loans in the state, in March. Because consumers get the loans while on their home computers in West Virginia, the lenders are subject to state law, says Norman Googel, assistant attorney general.

Virginia: In January, Virginia payday legislation went into effect, limiting borrowers to one payday loan at a time and doubling the amount of time borrowers have to repay the loans, among other changes. With lenders circumventing payday loan regulation by establishing open lines of credits for borrowers, the government has jumped into action, at least for state employees. In July, Gov. Tim Kaine announced the establishment of the Virginia State Employee Loan Program. The program will allow eligible city workers to take out small short-term loans of $100 to $500.

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  • JB

    I’m living the reality of these so called pay day loans. It’s so easy to get, but so hard to payoff. That’s what they want. In 6 months, you have paid the amount off you borrowed, but you still owe the amount you originally borrowed.

    I feel victim to this, twice because I didn’t have enough money to pay my rent. I was trying to also avoid NSF and overdraft fees at my bank.

    These folks make you think about ways to get money just to get them paid – legal or illegal.

  • Monica

    YOu know you are telling the truth! It is just a different kind of bondage with no freedom in sight

  • mgrant

    “PAYDAY LOANS” may very well be legal loan sharking. However, PAYDAY LOAN are the active words here. If you know you don’t want the money to be removed from your check when it hits the bank, DON’T BORROW THE MONEY, and if you do borrow the money deal with the consequences. IT IS AFTER ALL A LOAN (SHORT TERM-PAYDAY).

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