Payday Loans: Protecting the Borrower

An OppLoans eBook


Payday Loans: Protecting the Borrower

Many states have enacted legislation to protect the borrower from the snowball effect of rolling over or renewing short-term payday loans. For example, the 2005 Illinois Payday Loan Reform Act (PLRA) stipulates that a lender cannot roll over any loan if doing so would keep the borrower in debt for longer than six months. Also, the monthly payday loan installment payments can be no more than 22.5% of a borrower’s gross monthly income. The law allows any client with a payday loan (excluding installment loans) to request to enter into an interest-free repayment plan with the lender after being in debt for more than 35 days. The reform law also prohibits lenders from issuing a new payday loan if it would result in being in debt for more than 45 days in a row. These two provisions are designed to give payday loan borrowers some breathing room to pay off their old payday loan debt without getting buried under additional charges and fees.[10]

The Department of Defense went to battle with payday loan firms, whose businesses target members of the armed forces and are prevalent around military bases. In 2005, the Center for Responsible Lending determined that 20 percent of active-duty military members had taken out a payday loan. Also in 2005, a Center for Responsible Lending analysis of the payday loan industry data found that active-duty military personnel were three times more likely than civilians to have taken out a payday loan; one in five active-duty military personnel were payday loan borrowers last year; and predatory payday lending costs military families over $80 million in abusive fees every year. [11]

In response to the data, in 2007 the Department of Defense adopted rule 670 of the John Warner National Defense Authorization Act, better known as the Talent Amendment. The Talent Amendment created a 36% military annual percentage rate (MAPR) ceiling on payday loans, motor vehicle title loans and tax refund anticipation loans involving military personnel, their spouses and their dependents.  Regardless of state usury laws, active duty and reserve members of the Army, Navy, Marine Corps, Air Force, or Coast Guard, continue to be exempted by the limits instituted by the Talent Amendment. [11]

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