Payday loan companies licenses all just ended in Arizona. The state is also letting payday stores move out while they close their doors. Obama’s signature is the only thing the financial reform bill needs to pass. The majority are worried that payday loans will become obsolete if the bill passes since the bill works with the Federal Reserve to regulate lending.
Stores in Arizona closing
azcentral.com posted an article all about effects the percentage rate cap Arizona wants could have. At 36 percent interest, or rather, 36 percent annualized interest (on a two week loan), any payday lending in Arizona are having a hard time keeping their doors open. Check’N'Go, one of the largest payday loans, cash advance and check cashing franchises in the country, quickly closed 11 of its 34 locations. 100 Arizona employees count on this for their income and will no longer have a job by the time summer ends. The stores left have to switch to car title loans if they want to stay in business. Studies have shown greater incidents of bankruptcy, bounced checks and debt collections after bans on payday credit.
The unsigned financial reform bill
The Federal Reserve could have a new Consumer Financial Protection Agency in it with the financial reform bill. The bill just passes in Senate and now needs Obama’s signature. After it is signed, the Federal government could be totally in charge of how payday loan lenders goes. If the rate cap Arizona began goes out to the whole country, payday lending will die.
Who will the ban benefit?
Awful loans and high interest being gone is what most believe is the best part, although the truth is that cash advances will have to abide by the very same laws as mortgages and credit cards now. It costs $14 to lend $100 and with the 36 percent APR cap, only a couple dollars could be made off $100 loaned meaning the business would lose a lot of money. Since payday customers aren’t accessing first tier credit because they don’t want to or can’t, what is going to take the place of short term personal loan company if they cannot lend and keep their doors open?
Citations
Further reading
AZ Central
azcentral.com/community/phoenix/articles/2010/06/27/20100627payday-lenders-quit.html
Consumer Affairs
consumeraffairs.com/news04/2010/07/payday_loans_finreg.html
