Payday loans not only hurt families, they also hurt the economy. Payday loans might not be the cause of the current state of the economy, but they are putting more and more families further into debt. Luckily for consumers, the Kentucky state legislature is embroiled in a debate to help consumers by imposing limits to the amount of fees providers of payday loans can charge.
With the passing of House Bill 444, the state of Kentucky has taken the first steps to protecting consumers against outrageous fees and interest charges on pay day loans. The new law also establishes a moratorium on companies wanting to open new businesses that provide payday loans that will last ten years.
In some ways quick payday loans can help consumers get emergency loans, but far too often consumers ended up taking out multiple payday loans just to cover another. This cycle causes them to spiral further into debt with no hope of ever getting out, and many advocates’ groups in Kentucky estimate that consumers in the state are spending upwards of 131 million dollars a year in fees and interest on payday loans.
This debate is guaranteed to continue for some time, because the Federal Government has begun looking into the problems associated with payday loans. The U.S. Senate has begun debating a bill that would create an interest rate cap of 36% on all loans, including payday loans.
There has also been some debate as to whether there should be a federal interest rate cap on all type of loans, including credit cards. If any of the proposed federal laws make it through the house and senate, the profitability of companies that provide payday loans will come into question. Currently many providers of payday loans are collecting triple digit interest rates, and in some cases as much as 1000% on every dollar they loan to consumers stuck in a desperate situation.
Kentucky is not the only state that is actively trying to pass laws restricting how providers of payday loans can operate, nor are they the first. There are some states that do not even allow payday loans of any kind.
Regardless of the outcome of the debate, consumers should contact their state and federal representatives to help bring light to the unfair charges related to payday loans. There are two sides to every story and those that feel short term payday loans are a better option than bank charges for overdrafts should help to come up with a solution that is fair to consumers and profitable to providers of payday loans.