Laws to Protect Customers from Predatory Payday Loans Agencies |
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There are many consumer protection issues
raised by payday loans, especially since it is a sector that has been allowed to mostly grow unregulated. But, recently, payday loans market has attracted a great deal of attention from consumer advocates and other regulatory organizations, thus increasing the potential for litigation. Regardless of whether state law characterizes these transactions as payday loans, they are considered extensions of credit by the federal consumer protection law. There are as a result many laws and regulations that have been brought forth to protect the consumers from the largely predatory nature of payday loans agencies. The Community Reinvestment Act (CRA) is one of them. Under CRA, illegal credit practices include, but are not limited to, violations of the Equal Credit Opportunity Act concerning discriminating against consumers on a prohibited basis; the Truth in Lending Act, regarding disclosures and certain payday loans restrictions; and the Federal Trade Commission Act, concerning unfair and deceptive acts or practices. But this act has many loop holes as well. Under interagency CRA regulations and interpretive guidance, a payday-lending program may adversely affect CRA performance. For example, evidence of discriminatory or other illegal credit practices are inconsistent with helping to meet community credit needs and can adversely affect the evaluation of a financial institution's performance. Also, under longstanding interagency regulatory guidance, only illegal credit practices adversely affect CRA performance and may result in a lower CRA rating. And payday lending practices that are questionable, but not specifically prohibited by law, fails to get addressed. For example, payday loans to individuals who do not have the ability to repay, and may result in repeated extensions, do not help meet credit needs in a responsive manner. Truth in Lending Act (TILA), another regulatory act, requires banks engaged in consumer lending to ensure that accurate disclosures are provided to customers. A bank that fails to disclose finance charges and APRs accurately, for payday loans, might have to pay restitution to consumers, which in some instances could be substantial. This risk remains even if the bank provides payday loans through a third-party agreement. TILA also requires banks to advertise their loan products in accordance with their provisions. For example, advertisements that state specific credit terms may state only those terms that actually are or can be arranged or offered by the creditor. If an advertisement states a rate of finance charge, it must use the term APR, while stating the rate. If the APR will be increased after the initial origination date, the advertisement must state so. Also, all additional disclosures must be advertised. The Equal Credit Opportunity Act (ECOA) prevents illegal discrimination that may occur when a bank has both payday loans and other short-term lending programs with different interest rates or pricing structures. Examiners should determine to whom the products are marketed and how the rates or fees for each program are set. They must also decide whether there is evidence of potential discrimination. Payday loans lending, are susceptible to discriminatory practices, such as discouraging applications, requesting information or evaluating applications on a prohibited basis. The ECOA limits the type of information that may be requested from applicants. A creditor can't refuse to grant an individual account to a creditworthy applicant on the basis of sex or marital status. ECOA also requires creditors to notify applicants of adverse actions taken in connection with a payday loans application. And these notices must be provided within specified time frames and on specified forms. Examiners should also ensure the bank has appropriately addressed the security risks in payday lending arrangements to safeguard customer information, whether in paper, electronic, or other form, maintained by or on behalf of the bank. Thus, it can be seen that there are many guidelines and regulations given to payday loans agencies to ensure that the customers get a fair deal. But there is still a long way to go. |
