New Payday Loan Rules Make It Harder to Get Loans

In the US, payday loans are subject to laws and regulations of each state, and some states are more aggressive when it comes to creating laws and regulations to protect consumers from what may be considered unfair or predatory practices.

Washington is one of the more aggressive states, enacting several laws an rule changes in the last year that favor consumers or limits what payday loan companies can do.

In 2009, the state implemented several changes, including limiting fees to a maximum of $50. In addition, the fee must be charged in advance and can't be financed. In other words, if there is a fee, the borrower has to pay it up front before getting a loan.

Washington state also added additional regulations concerning loan collections. Previously, when a payday loan company collected its own debts it was not subject to the state’s collection agency practices act which has many protections for consumers. With a change in the law, these companies had to behave like other collection agencies and not participate in harassing or intimidating behavior when collecting their debts.

As of January 1, 2010, the following additional rules took effect in Washington:

• The total loan amount (for one or more loans on an account) was limited to $700 or 30% of the borrower’s gross monthly income, whichever is less.
  
  
• A borrower could take out no more than eight loans in a 12-month period.
  
  
• All payday loan companies had to enter borrower data in a central database, which prevented lenders from making larger loans or more loans than is legally allowed.
  
  
• Borrowers who could not pay back their loan as agreed could replace their previous payment plan with an installment plan with a longer payback time with no additional fees. That installment plan option also became available at the borrower’s request at any time before their loan is due.
  
  
• A borrower in default on a loan or in an installment plan on an existing loan is not longer allowed to get additional loans.

What This Means for You
Borrowers in Washington state have additional breaks and protections if they are late in paying their loans, but significant restrictions in what kinds of loans are now allowed.

If you are not in Washington state, and either have a payday loan or thinking about getting one, check the laws in your state or community to see what kinds of protections and limits you have and what changes may have happened at the beginning of this year.