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What if Payday Advances Were Not Regulated by Law?

Cash advance loans are regulated by law not only in the United States but also elsewhere in the world. As for the States, the industry depends on the federal and state governments or the restrictions they make.

Today every borrower is protected at some point (depending on the state) and secured by:

1)      Limitations on the amount of renewals or loan prolongations (protection from debt);

2)      Limitations on the amount of money funded to the borrower’s account (protection from the failure to pay off the credit);

3)      Limitations on fees and rates as well as policies for penalty payment implementation (protection form overwhelming credit obligations).

Curious scenario would be if no regulations had ever been laid on this business. What would the ability to acquire money by payday loans look like?

Federal Regulations of National Cash Advance Loans

Both the federal government and the states regulate any payday loan. The federal government regulations come from different sources and control various aspects of this industry.

If no regulations were applied, then:

·         Members of the military despite increased interest rates would have the option to get a cash advance, so everyone applying for one would come across no file indicating his or her relation to the military service, thus, eliminating all special rates and caps assigned to these borrowers. Today the Military Lending Act puts a cap on the interest rate available for charging from a member of the military. This point can’t exceed more than 36% with payday loans.

Borrowers would no longer be safe, because:

·         There would be no more Consumer Financial Protection Bureau (CFPB) to regulate the entire industry. Currently the CFPB is authorized to take action against anyone in the industry who uses aggressive methods of debt collection or violates rate restrictions.

·         Without the Federal Truth in Lending Act no additional fees, disclosures and terms would ever be applied. Lenders would be able to hide true figures and lure borrowers by conspiracy and unfair marketing.

·         The FDIC Advisory Committee on Banking would have no authority to monitor banks in respect to cash advance lenders for disclosing any illegal cooperation that enables coverage from regulations.

State Regulations of Cash advance Loans

If there were no regulations on national advances it would affect the industry

·         They would be legal in all 50 states rather than being legal in only 36 states with 9 of those states restricting it in some way. The 14 states together with District of Columbia that outlaw and ban payday loan advance now, would probably have this business matured.

·         The laws in Indiana, Oklahoma, Florida, Virginia, Michigan, South Carolina, Illinois, New Mexico and North Dakota would give the possibility to lend as much cash advance so that to cover all the requests. For now, they have to deal with limitations conserving the number of simultaneous loans for one borrower.

·         Without any legal regulation, the USA loan industry handling money in advance would be flourishing in 50 states and District of Columbia. That might have led to free enterprise development in this domain. On one hand, numerous cases with fraud schemes might have appeared, on the other hand, that would improve this environment by lowering rates due to fair trading principles.

If there were no regulations on national cash advances it would affect the gimmicks

·         Cash advance industry would not take priority of Native American populations through “rent-a-tribe” as a form of gimmick to avoid state and federal regulations.

·         There would be more fraud concerning illegal ID and bank account data usage. The scam schemes would flourish at a large scale, infringing fair credit industry development.

Different Environment of Cash advance Loans

The process of getting cash advance loans online would look entirely different if there were no law regulations. If the industry granted loans to anyone who needed, then there would be many more various institutions and individuals taking advantage of what the industry offers. No one would be turned away or turned down in spite of any unfavorable circumstances.

In addition to the states mentioned above many others, including Alabama, California, Washington, Colorado, Delaware, Alaska and more, have laws or regulations restricting the industry. If these regulations along with the federal ones did not exist, everyone in every state would have equal and unfettered access to money in advance.