The government has been alarmed about the series of complaints received from consumers of payday installment loans. They accuse some financial lending companies of charging extremely high interest rates, usually more than a 100% of the loan amount. Payday installment loans are designed to meet emergency cash needs of low-income workers, people with fixed income, senior citizens, military personnel, and even unemployed workers with income.
However, financial lending companies sometimes loan consumers an amount greater than he can actually pay with his next paycheck. As a result, the consumer commits defaults resulting in adding interest and fees until he is caught in an endless cycle of payments. Once the consumer can’t make a payment, financial lending companies employ unfavorable collection practices.
These collection practices are the main reason why the government has passed regulations against financial lending companies. Here are some common collection practices that most financial lending companies employ and the corresponding actions taken by the government to protect consumers of payday installment loans.
- Collection by Phone Calls
When you apply for a payday installment loan, most financial lending companies require you to provide your phone number at work to verify your employment. So when you owe them money, they will collect by calling your phone at home or at work. Until you pay your loan, they will never stop calling and these poses a problem. Your work suffers because of this harassment, or worse, you may lose your job for continual personal calls.
The Fair Credit Reporting Act requires that debt collectors cannot collect money from you by phone, and consumers can advise them in writing to cease calling. If the company fails to abide with this, you can file a complaint and submit it to the Federal Trade Commission.
- Collection Practice Regulations by State
Most of the states have their own laws that prohibit or limit the collection practices and activities of lenders of payday installment loans. Some states even regulate the amount to be borrowed and the amount of interest rates for each loan. Some have also regulated the number of times a borrower can get loans in a year to avoid collection harassment by financial lending companies.
- Process of granting Military Loans
It has been observed that many financial lending companies prey on military members and families due to their secured payment. With this, the federal government has recently required any company offering military loans to be federally licensed. The license can only be acquired when the business is in complete compliance with all federal and state laws for collection practices. This may make it harder for military servicemen to find loans, but this will protect them from loan sharks.
- Regulations on Online Loans
According to the EFTA (Electronic Fund Transfer Act), a lender of payday installment loans cannot require you to pay the loan electronically. You are allowed to make a stop payment on any transactions from the lender, or you can close your account in the bank without any legal questions. However, you need to pay for the stop payment fees. Also, in this situation, financial lending companies can turn over your account to a collection agency or can report your non-payment to a collection agency or credit referral service, such as Teletrack, which may affect your credit rating.
With these regulations on the collection practices of most financial lending companies, consumers of payday installment loans can now breathe smoothly because their rights are protected. However, there is no other safe way to avoid problems with lenders than to pay your loan responsibly and choosing your lender wisely from the very start of the loan process.