As complaints from borrowers of payday installment loans has increased, the government has decided to take legal action against lenders. Legislators have written laws and regulations covering payday installment loans and the lending practices of lenders in order to lessen the abuses and harassment to borrowers.
Some of the issues regarding abuses and malicious manipulations of lenders of payday installment loans show that there are borrowers who are paying very high interest rates, balloon payments, and expensive late payment surcharges. When the loan is left unpaid for several months, the borrowers receive harassment from collection calls. Worse, most borrowers end up in more debt than the original amount of the loan.
This is the reason why the state government has to stepped in. In the state of Washington for example, they have set rules regarding the lending practices of payday installment loans. Effective January 1, 2010, the following changes have been implemented:
1. Borrowers are only allowed to borrow a total of $700 or 30% of their gross monthly income. This is to ensure that they can afford to repay the loan on time.
2. All personal and financial information of borrowers is registered in a state-wide database, providing accurate and up-to-date loan information on all payday installment loan lenders.
3. Borrowers are only allowed to take 8 payday installment loans out in a 12-month period. This is to allow them to have a hold on their finances and debts to avoid severe loss.
4. In case a borrower is unable to repay his loan at the scheduled time, before the loan is due, he may ask his lender for an affordable installment plan at no additional cost. As soon as a new installment plan is issued by the lender, the borrower cannot get another loan until the first loan is paid off.
5. Lenders cannot harass borrowers for collection of payments. For collection harassment, borrowers can contact the Department of Financial Institutions (DFI) to file a complaint. The Department of Financial Institutions (DFI) is the licensing and regulating body in the state of Washington for all payday installment loan lenders and the whole payday loan industry, as well. You can verify the license of a lender by calling 1-877-RING-DFI (746-4334). For practical and legal reasons, before closing a deal with a lender, verify its license with the DFI.
6. Other Specifics of Payday Installment Loans in Washington:
Maximum Loan Term: 45 days
Maximum Loan Amount: $700 (may be accumulated or taken one at a time)
Maximum Loan Fee: 15% on the first $500 and 10% above $500.
7. Borrowers in the state of Washington are given the following rights:
· Right to change their mind about their loan decision within a day at no extra cost.
· Right to know all the costs associated with the loan and to have a payment plan. A borrower must be informed about finance charges and the annual percentage rates (APR) of his loan.
· Lenders cannot threaten borrowers with criminal prosecution when collecting a past due payday installment loan.
· Lenders are not allowed to give a borrower a new payday installment loan as a means of paying off an existing loan by the same lender or an affiliate lender.
All these rules are set to regulate the lending practices of lenders and to protect borrowers from massive abuses and unfair treatment.