Payday lenders will face another dilemma over a new controversial bill that is currently being taken into consideration and is under debate in the House of Representatives. The bill is said to change some rules designed to protect borrowers of payday installment loans from predatory payday lenders.

The House Bill 1678, which is a repeal of a year-old rule that imposes an eight-loan cap for borrowers of payday installment loans within 12 months. According to the bill’s sponsor, Rep. Steve Kirby, this is to prevent the risk posed by online short-term loans. He reiterated that, “The evidence would seem to indicate that consumers are seeking higher cost, unregulated products.” He said that the current eight-loan cap is only making borrowers of payday installment loans patronize unlicensed online loan companies because of the greater demand for loans. He also added that if the eight-loan cap is changed, it will only put borrowers into greater debt and keep them in a cycle of debt.

Under the law passed in 2009, borrowers of payday installment loans are limited to an eight-loan cap and can borrow only $700 or 30% of their monthly income at any point in time. Usually, payday installment loans are short-term and borrowers are required to repay the loans with a post-dated check. When time comes that the payment is due, the lender will cash the check or he may give the borrower an option to pay in cash and get the check back. In case borrowers cannot pay off their loans by the deadline, they are entitled by law to be give an installment plan to the payday lender for consideration.

When the law went into effect in 2010, the State Department of Financial Institutions reported a decrease in payday installment loan applications from 3 million to 1 million. Complaints filed against online loan companies increased from 96 in 2009 to 108 in 2010. There was also an increase of complaints against storefront payday lenders from 120 in 2009 to 184 in 2010.

However, anti-poverty advocates insist that the new house bill will only make borrowers of payday installment loans unprotected from predatory lenders. The advocates are even claiming that the 2009 law is working. They feel that the legislature should be focusing on educating borrowers about payday installment loans rather than strengthening the regulations on payday lenders.

According to Beverly Spears of the Statewide Poverty Action Network, “Let’s attack the problem in a direct and focused way. Let’s build on the existing law and pass new protections on online loans.” She is also campaigning against unlicensed payday lenders that continue to victimize borrowers to pay off their loans. Under state law, payday lenders that are not licensed by the state have no right to collect and harass their borrowers to pay off their loans. These issues must be the addressed by the lawmakers but not at the expense of decreasing the number of loans that people can apply for. Consumers must be made aware that they don’t have to pay back predatory and unlicensed payday lenders.

Other opponents of the house bill also argued that lessening the eight-loan cap cannot prevent people from applying for short-term loans. These are the quickest financial resources they can turn to in times of urgent needs. In fact, they believe that the cap on the loan and amount of money that borrowers can have provides adequate protection for borrowers.

Repealing the bill may not be the solution for the problem on payday lending practices. It is in educating the people on ways to choose their lender and how to handle their loan conscientiously.