A move to curb electronic payment of payday loans

The National Consumer Law Center is now sponsoring an effort to change laws to prevent payday loan centers from using electronic bank transfers to receive payments from Social Security recipients. The center has drafted model regulations that would cap payday loan interest rates at 36 percent, and would require financial institutions to evaluate whether a borrower can afford a payday loan if the loan is to be backed by a Social Security check. The proposal would prohibit lenders from requiring debtors to provide electronic access to a bank account to pay off these loans.

The NCLC is worried that there will be a large increase in electronic payments of payday loans as the government moves to make all their Social Security transactions by direct deposit. Short term payday loans often carry effective interest rates over 100%. People who get stuck in a vicious cycle trying to pay off these loans can find relief in the bankruptcy code; a Chapter 7 bankruptcy case will eliminate these loans and stop payments from being deducted from your bank account immediately.

 

By Doug Beaton

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