The proliferation of fast loans online today in the US (as is in the UK and Canada) featuring easy and quick approval by the direct lender opens the floodgate to unscrupulous lending practices to the detriment of both borrowers and legitimate lenders. To protect consumers, both Congress and the state have regulations that seek to protect borrowers. Ron asks about these lending laws:
“I’m considering getting fast loans online to help me augment my tight budget this week. However, I’d like to know if these are legal. What are the regulations that govern fast loans online?” – Ron, Santa Fe, NM
Except for some states that have banned fast loans online, this type of loan is legal and follow regulations enacted by Congress that created the Consumer Financial Protection Bureau, which oversees financial product in the U.S., where the loan is either big or small including fast loans online. In addition, each state has specific regulations on lending practices. You can check your state’s specific regulations here, but generally, there are four main regulations that protect borrowers including those with bad credit from unscrupulous lending practices.
1 Cap on interest and fees
Fast loans online and other small loans have a cap on their interest and collection fees. Traditionally, small loan range from 24% to 48% annual interest rate; however, in some states like Texas the cap for fast loans online and similar small loans is not regulated. Rather, lenders are expected to abide by the more encompassing federal usury laws.
2 Limit on number of simultaneous loans
Some states also put a limit on the number of loans that borrowers can take out at once. In California and Virginia, for instance, you can only have one outstanding loan at a time; but in North Dakota, there’s no limit. Instead, you’re only allowed to have a current aggregated $600 loan at most.
3 Limit on number of refinancing
State regulations also put a limit on refinancing, where you roll over fast loans online with other loans. This can put borrowers in a debt spiral that they end up paying as much as eight times the amount of the original loan. In fact, some states such as Nebraska, Oklahoma, and Kentucky prohibit refinancing or consolidating loans, while other states only allow roll-overs once. Again, check here for more details about your state’s specific regulations.
4 Protection against harassment, intimidation
Harassment and intimidation by a direct lender are prohibited under law. You cannot be arrested or your assets seized because of an outstanding debt. An unscrupulous direct lender or its agent may test your legal knowledge about this. When they call you and claim that you can be arrested, tell them they have no legal basis and turn the tables on them: they can be sued for harassment and intimidation under the law.
CONCLUSION
The law has enough protection for borrowers against unscrupulous lending practices. Know your legal rights to avoid being a victim to an abusive direct lender. Moreover, when looking for fast loans online do a careful background check to find a direct lender that abides by ethical and legitimate lending practices.
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I know it’s common practice for lenders to try your legal knowledge first. They’ll call you up numerous times until you remind them that you know your rights. I’ve been at the receiving end of this once. They’ll often stop when they know you know you have protection from harassing calls. In fact, you should tell the lender at once not to call you at the office because technically the company phone line is not your property and it’s a public place in a way.
So what if I’m dealing with an online lender from another state? Which state regulations will be followed? Mine or the lender’s? About harassment, I remember reading a news article about some people posing as FBI agents. They’ll demand that you pay your outstanding loans to a certain account or you’ll be jailed. I think some lenders practice this if only to get back their money. But the FBI warned they do not practice this and, in fact, it’s illegal.
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