Payday Loan Lenders Under Legislative Pressure

The main reason for detailed inspection and careful watch associated with instant payday loan industry is supposed to be high interest rates; as if high interest rates have the potential of worsening financial stability of the individuals taking out payday loans.  However, so-called high interest rate turns out to be rather normal if we compare it with non sufficient funds (NSF) fees, which in its turn are much higher than payday loan fees. APR of an overdraft fee is sometimes ten times more expensive.

The situation being controversial, it is necessary to spell out the grassroots of it. First of all, as it was mentioned overdraft fees are often more expensive than cheap payday loans online. They bring huge revenue (some 38 billion dollars) to the Wall Street major financial lending institutions and banks. Payday loans are often better alternative to overdraft fees, which is considered by banks as a threat to their income. What is more, with the rise of payday loans industry many alternative lenders start developing, thus threatening the revenue of the Wall Street giants.

Short term lending, such as payday loans are very useful to people, but poses a threat to major financial institutions' profit. To put payday loan industry under a legislative pressure, banks have gathered a lot of lobbyists. According to some resources the lobbying is represented by 1500 federal employees and 73 members of congress on the Washington level, and many more on the state level.

Payday loan industry is unfairly considered to have been one of the contributors to the financial meltdown. However in reality payday loan lenders never did anything that could have affect Americans. To the contrary, in the circumstances of financial crisis facing it consequences payday loan lenders continued lending, meanwhile the majority of banks don't lend even now. Thus payday loan lenders were the only source of cash for working class Americans.

High annual percentage rate is the very thing payday lenders are criticized for. Although it may seem unaffordable, high APR is still the only way to payday loan lenders to survive. Being approved without checking the credit, payday loans are definitely high risk loans. They are also expensive in operation costs. Borrowers now are facing an increased overhead cost on operation, as the taxes for payday lenders are growing and regulations are getting stricter. Payday loan aren't expensive for borrowers only, they are expensive for lenders as well.

Still the pressure exercised on payday loan industry is huge. Many states banned 500 payday loans, some states regulate them to extreme extend. Payday loans are unfairly treated despite the fact that they help the economy and Americans even in worst-scenario situations. Payday loan companies provide jobs, pay taxes and keep the cash flowing. The question is whether these benefits aren't needed?