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State Regulations For All Payday Loan Companies?
Although not every state in the U.S. allows for payday lending, those who do have put state regulations in place to protect customers from predatory lenders. If a borrower has a problem with their payday loan or cash advance lender, they can count on having some recourse due to being protected by the Federal Trade Commission as well as the Fair Collections Act. Each state also puts a cap on the amount the lender can loan, how much interest they can charge, and how high their fees can go.
This unfortunately does not hold true for offshore loan companies and tribal-based lenders. Offshore lenders can be anywhere outside the U.S. and therefore are not bound by the same laws as U.S. lenders. They have carte blanche when it comes to fees and interest rates and consumers have no legal protection should something go wrong. Not to mention they can do whatever they please with the borrower's information, often times leaving the consumer to fall victim to identity theft and illegal scams.
The same holds true for tribal-based lending companies. With the benefit of sovereign immunity protecting tribal-based businesses from state regulations, borrowers outside the tribe are not legally protected should something go wrong with their loan. As with offshore companies, these lenders can do what they want when it comes to fees and interest rates. There are no caps and interest rates are much higher.
So with that being said, why would a person choose to take out an online payday loan with an offshore or tribal-based lender instead of a retail or online lender that is located here in the U.S.? Simply put: The amount a consumer can borrow. Typically the applicant can get a higher dollar amount on their loan than what their state allows them to borrow. Often times the desire to get more monetarily trumps the concern for how much they will end up paying for their loan in the long run. This can lead to higher overall loan amounts which may result in a borrower not being able to payback their on their next payday. This could mean potential financial disaster for the borrower.
Getting a payday loan or cash advance is a short-term solution to getting some quick cash for a financial emergency or unforeseen expense. Borrowers should always do their research when looking for a credible lender, keeping in mind that the lender should be licensed and regulated by their lending state.