The Iowa Legislature received a bit of help from the Catholic Conference this week in its push to increase the state's regulation of payday loans. Although there are currently laws on the books regulating these types of loans, according to the Iowa Division of Banking, borrowers who use payday loans average as many as 12 loans, making the state the nation's leader in the number of loans per consumer.
The two areas of the payday loan industry that are not currently regulated in Iowa are interest rates, and the number of loans permitted to be given to a single borrower. In an industry in which interest rates can reach 400%, the Catholic Conference has suggested a 36% interest ceiling. Iowa's representatives are also thinking about loan limits. "By limiting the number of loans the payday industry can make to one person, lenders will be forced to take some responsibility for ensuring that Iowans don't end up in a vicious debt cycle," said State Rep. Janet Petersen, D-Des Moines.
The Executive Director of Iowa's Catholic Conference, Tom Chapman, told reporters Tuesday, that the system of payday loans is based on the failure of Iowans, not on success. Addressing the issue of loan interest rates, Chapman said, "We believe these types of interest rates are unjust and should be outlawed." This is what the Iowa Legislature will consider when it reconvenes later this month.
Most states have some form of regulation for payday lenders. These laws can regulate the amount of fees, the length of time of the loan and the notification lenders are required to give. Some states regulate the amount of interest that can be legally charged and require lenders to be licensed, but many do not. Consumers should carefully review all the terms and interest rates of each loan and make certain they understand those terms before borrowing.
For a state-by-state breakdown of payday lending laws, see the National Conference of State Legislatures link below.