Federal Trade Commission Puts Pressure on Payday Loan Lenders

Although payday loan regulations have generally been dealt with at the state level, with some states allowing them and others essentially banning them, regulations have been slow to come at the federal level. However, this may soon change as the Federal Trade Commission has begun to show interest in the workings of such businesses.

As this industry continues to grow at the rate it is, it is beginning to attract more attention, much of it negative. People decry lenders as practicing usury, or the custom of charging severely high interest rates on loans. Lenders have continually denied these charges, arguing that they promote not only responsible lending but responsible borrowing. They say that this industry provides a vital service to those who could not otherwise borrow money because of poor or no credit, and that loans are entirely affordable if borrowers are responsible.

Despite the concerns raised above, the payday loan industry is growing, and online lending is on track to soon become the largest method for withdrawing such loans. This brings the issue of lending into a new arena, with lenders now being subject to online regulations as well as lending regulations. With this growth in such a hotly debated industry comes growing pressure from those who view it negatively.

The payday loan industry and several individual businesses have been subject to a variety of lawsuits and investigations. Most of these have been primarily concerned with businesses that fail to disclose vital loan information, such as lending rates and fees, or for attempting to get members of states that have outlawed such loans to withdraw them online. These lawsuits and investigations have generally been executed at the state level and have had little effect on any federal regulations of the industry.

However, a current lawsuit in Kansas could change all that. This suit is being filed by the Federal Trade Commission and could have a significant impact on the payday loan industry. Essentially, the FTC seeks to deny lenders access to borrower's bank accounts, a major way in which lenders are able to get payment from borrowers. The FTC claims that this practiced is outlawed by the 1968 Electronic Funds Transfer Act.