Pennsylvania Considering Making Payday Lending Legal

While the verdict is split on whether or not payday loans are a good thing, most everyone will agree that there needs to be some option available for short-term financing in emergency situations.  Until a better solution is offered, payday loans are pretty much it.  At least as long as they are available the option is there, and there is the potential that the loan could be paid off in time rather falling into the all too common debt trap common with those types of loan

 

It is a choice that is, unless you live in Pennsylvania, which has been able to keep payday lending illegal.  But that may be changing, and opinions on these potential changes are mixed.  In September the state Senate Banking and Insurance Committee is holding a hearing on the issue due to a revived attempt to get related legislation on the desk of Gov. Tom Corbett again before the end of the year.  Opponents fear it is a huge mistake, while supporters maintain that there has to be an option.  It did pass the House of Representatives, although narrowly, in June.  It was not acted upon before the Legislature dismissed to summer vacation.

 

According to a recent study by the Pew Charitable Trust, these loans appear to trap people in a debt cycle they cannot escape.  Statistics show that borrowers typically used the funds not for luxuries, but for living expenses.  As this bears out, it is not uncommon for them to not have the funds to pay the loans back fully in time, and thus more interest and fees accrue.  That is nothing supporters and opponents of the loan alike do not already know.  The problem is supporters feel that consumers have to have alternative financial options.  If there is an issue with bad credit, short-term financing in emergency situations can be very difficult, if not impossible to come by.

 

In this particular piece of legislation there are safety nets in place.  Loans are limited to $1,000 or 25 percent of gross monthly income.  They cannot be rolled over directly either, but rather borrowers would have to set up an extended repayment schedule.  This is more borrower protection than most states with legal payday lending have, but is it enough?  Only time will tell.  It is important to remember too that during the time the loan is taken out and the time is has to be paid back action can be taken to ensure the money is available to repay the loan on time.  This is the time to take an extra job, sell something, or whatever else is possible to pay the loan back on time and avoid the debt sink hole.

 

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