Federal Trade Commission Puts Pressure on Payday Loan Lenders

Although payday loan regulations have generally been dealt with at the state level, with some states allowing them and others essentially banning them, regulations have been slow to come at the federal level. However, this may soon change as the Federal Trade Commission has begun to show interest in the workings of such businesses.

As this industry continues to grow at the rate it is, it is beginning to attract more attention, much of it negative. People decry lenders as practicing usury, or the custom of charging severely high interest rates on loans. Lenders have continually denied these charges, arguing that they promote not only responsible lending but responsible borrowing. They say that this industry provides a vital service to those who could not otherwise borrow money because of poor or no credit, and that loans are entirely affordable if borrowers are responsible.

Despite the concerns raised above, the payday loan industry is growing, and online lending is on track to soon become the largest method for withdrawing such loans. This brings the issue of lending into a new arena, with lenders now being subject to online regulations as well as lending regulations. With this growth in such a hotly debated industry comes growing pressure from those who view it negatively.

The payday loan industry and several individual businesses have been subject to a variety of lawsuits and investigations. Most of these have been primarily concerned with businesses that fail to disclose vital loan information, such as lending rates and fees, or for attempting to get members of states that have outlawed such loans to withdraw them online. These lawsuits and investigations have generally been executed at the state level and have had little effect on any federal regulations of the industry.

However, a current lawsuit in Kansas could change all that. This suit is being filed by the Federal Trade Commission and could have a significant impact on the payday loan industry. Essentially, the FTC seeks to deny lenders access to borrower’s bank accounts, a major way in which lenders are able to get payment from borrowers. The FTC claims that this practiced is outlawed by the 1968 Electronic Funds Transfer Act.

This suit could have a strong and possibly devastating impact on this industry. By taking away lender’s access to borrower’s bank accounts, this new regulation would severely deter one of the primary ways in which lenders are able to ensure that they receive payment for loans which have been borrowed. This could mean that a high loss in revenue, as many of these loans may go into collections rather than be forcibly paid through one’s bank account. With such a loss, the online payday loan industry may soon become unprofitable, forcing businesses to shut down and effectively ending online payday loans. Responsible payday lenders will make a point to keep up with the latest laws and newsin the payday loan industry ensuring that we abide by all laws and regulations.

It is yet to be seen how this law suit will play out and whether it does have the aforementioned effects. However, it is clear that as the industry grows it will be subject to more and more inquiries and growing pressure from consumers and the government. This is normal for any new and highly debatable business, and so is not entirely unexpected. While bad news for the industry itself, this could be a welcomed change for those who have been or could potentially become victim to such business practices.