The Payday Lending Limitation Act of 2010

U.S. Senator Kay R. Hagan (D-NC) will introduce legislation soon regarding payday lending. As she says,

The purpose of the legislation is to ensure payday lenders can no longer send hardworking families into a spiral of debt. The Payday Lending Limitation Act of 2010 protects borrowers by ensuring that short-term cash advances remain short-term. Senators Richard J. Durbin (D-IL) and Charles E. Schumer (D-NY) are cosponsoring the bill.

“Too many hardworking individuals have fallen victim to payday lending,” said Hagan. “Payday lenders prey upon folks who find themselves in need of a quick loan. These lenders charge astronomical interest rates and expect unrealistic repayment terms. In the state Senate, I worked to pass legislation that effectively ended payday lending in North Carolina, and I hope to do the same across the country. By reigning in payday lenders, we will protect consumers from racking up endless, long-term debt that can ultimately cause a family to declare bankruptcy.”

“This bill would stop unscrupulous lenders from charging 400 percent interest on loans, especially during these hard economic times,” said Mike Calhoun, president of the Center for Responsible Lending, a nonprofit, non-partisan research and policy group based in Durham. “Sen. Hagan fought for these protections when she was in the North Carolina senate and is now bringing this commonsense approach to the federal level.”

By marketing payday loans as short-term advances, predatory lenders trap borrowers in a cycle of debt. With repayment due in just days, interest rates that reach 400 percent, and required lump-sum repayments, borrowers are often forced to take out new loans to repay the old loan. Over 60 percent of payday loans go to borrowers with 12 or more transactions per year and 24 percent of payday loans go to borrowers with 21 or more transactions per year.

Payday borrowers typically receive loans of $300-$500 and secure them with a post-dated check or debit authorization that coincides with the borrower’s next payday. These loans often are taken out to meet unexpected, short-term expenses. However, studies and anecdotal evidence show that borrowers frequently remain indebted for many months after receiving their first payday loan.

Hagan will work with her colleagues to include the Payday Lending Limitation Act in the Wall Street reform legislation the Senate will soon consider. The current version of Wall Street reform excludes regulation of payday lenders.

The Payday Lending Limitation Act of 2010 would modify the Truth In Lending Act to:

  • Limit Rollovers -The bill will prohibit creditors from issuing new payday loans to borrowers with six loans in the previous 12 months or 90-days aggregate indebtedness. FDIC-regulated banks have been subject to this six-loan standard since 2005 – this bill would just extend the same standard those community banks observe to all lenders.
  • Provide Extended Repayment Plans – Gives borrowers an option to repay their loan over a longer time period to break the debt trap. The bill mandates that creditors offer an extended repayment plan to borrowers who are unable to meet repayment obligations
  • Regulate the Payday Lending Industry – Gives the Federal Reserve Board the authority to require licensing and bonding of payday lenders.


Damon Day - Pro Debt Coach

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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