State Law on Payday Loans Taking Effect
By Barry Massey/ Associated Press SANTA FE — New restrictions on payday loans take effect this week, including a cap on the fees that lenders can charge consumers. However, critics say New Mexico’s new law fails to safeguard borrowers — often the poor — from becoming trapped in debt. Payday loans are short-term advances of cash against a borrower’s future paycheck or when a lender holds a borrower’s personal check and agrees to cash it later to cover the debt. The loans can be up to $2,500. A new state law takes effect Thursday that caps fees, limits the length of a loan and restricts the total amount that consumers can borrow. Financial regulations implementing the law’s provisions also go into effect. The law was enacted after years of battling in the Legislature. Consumer advocates contend that the poor are targeted by payday lenders offering short-term, high-interest loans. Gov. Bill Richardson said the law and regulations “will protect New Mexicans from predatory lending and the spiraling debt often associated with these loans.” But the Center for Responsible Lending, a nonprofit research and policy group, contends that New Mexico’s law doesn’t impose a meaningful cap on loan costs and won’t prevent borrowers from becoming mired in debt. “In those states that have those types of protections that New Mexico is just now implementing, they have some of the worst debt-trap lending in the country,” said Uriah King, a policy associate with the group in North Carolina, which published a report last year on payday lending. Under the state’s law: _ Payday loans can have a maximum term of 35 days but no less than 14 days, unless the borrower agrees in writing to a shorter length. _ Fees are charged instead of an interest rate. Those fees can be no more than $15.50 for each $100 borrowed. King said those fees are the national average for payday loans. The fees would be thet in October that imposes a 36 percent cap on payday, car title and some other loans to military personnel and their families.
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Extended payment plan for payday loans
In its latest announcement, the UKs Financial Conduct Authority (FCA) proposed that consumer credit customers who have not yet had a payment deferral under its July guidance are able to request one, and that borrowers who are currently benefitting from a first payment deferral under the July guidance are able to apply for a second deferral.
In an effort to support those financially affected by the pandemic, deferrals could last for up to six months вЂњunless it is obviously not in the customerвЂ™s interestsвЂќ.
Having initially introduced payment holidays for credit customers in April 2020, the FCA extended them for a further three months in July. Then, following the government announcement of another nationwide lockdown for England, the FCA revealed this latest batch of six-month payment deferrals.
Stephen Haddrill (pictured above), director general of the FLA, explained: вЂњLenders are committed to supporting customers in financial difficulty and it is vital that this support is provided in a way that best serves their borrowersвЂ™ interests.
вЂњThis is best achieved under existing FCA rules that require lenders to assess their customerвЂ™s position carefully. Giving borrowers the impression that a six-month deferral is always the right answer is dangerous. It could leave people with unsustainable debts that they may struggle to repay.вЂќ
Following the announcement of another UK lockdown set to take place over November 2020, the FCA explained that it is crucial that consumer credit customers who can afford to continue to make repayments continue to do so, and that borrowers should only take up this support if they need it.
Additional points in the FCAвЂ™s plan include:
- With high-cost short-term credit (such as payday loans), consumers will be able to apply for a payment deferral of one month if they havenвЂ™t already had one;
- Consumer credit customers who have already benefitted from payment deferrals and are still experiencing payment difficulties should speak to their lender to agree tailored support;
- Consumer credit customers should not contact their lender immediately, with lenders due to provide further information if the FCAвЂ™s proposals are confirmed.
The FCA did not comment on whether people could still have interest on the first ВЈ500 of their overdrafts waived, explaining that an additional statement would be made in due course, clarifying the specific details of the deferrals.
Haddrill added: вЂњThe FCA should limit its guidance on payment deferrals to three months at this stage as it did in March, so that there can be a full review of the policy by the FCA, and of individual circumstances by lenders before any extension. Without this, some people will continue deferring payments and accruing debt to their extreme detriment.
вЂњIf HM Treasury and FCA press ahead with a deferrals policy until the end of March 2021 in spite of these risks, then furlough should also be extended well beyond one month to give more people a realistic chance of being able to better manage their repayments in the interim.вЂќ
In its final point, the FCA stated it would be working closely with trade bodies and lenders in the near future on how to implement these proposals as quickly as possible.
The FCA loosely state in this release that simply delaying a debt problem will not resolve the issue at all. In many cases, payment deferrals are not the most viable option for a customer and they should not be used unless truly needed. In fact, вЂњtailored supportвЂќ from the lender may be a better option for many customers experiencing financial difficulties.
According to the BBC, banks and other lenders have a duty to identify anyone who is vulnerable and make sure they are supported, and that as the pandemic rages on, the number of people falling into that category is likely to rise.