Payday Loans to Get Scrutiny

These risky loan products are about to get more attention. Under financial reform legislation enacted in July of this year, payday loan providers will be subject to federal regulation for the first time. Consumer advocates say this ought to bring about change for a sector that traditionally operated in the shadows.

These risky loan products are about to get more attention. Under financial reform legislation enacted in July 2010, payday loan providers will be subject to federal regulation for the first time. Consumer advocates say this ought to bring about change for a sector that traditionally operated in the shadows.

Most important, the government will likely start collecting data on the products payday lenders are peddling and that alone could bring an end to some of the industry's shadiest practices, Leech says.

"It's possible that some of the things they've been doing that harm consumers, they might stop doing voluntarily so they don't have to report [any of] it," she says.

But big changes to payday lending will most likely take time. Regulation is expected to come from the new Consumer Financial Protection Bureau. This agency opened its doors July 21, 2011, but Senate Republicans — who are demanding changes to the agency’s structure — have vowed to block the confirmation of any nominee to lead the organization.

Once the agency is fully operational, consumers will have a government agency to turn to for help and guidance. And consumer advocates say they hope to see requirements forcing payday lenders to clarify to consumers the costs and rules associated with the products they're selling.
In addition to facing more regulation, payday lenders may also face more competition: The financial reform law also contains incentives for more mainstream financial institutions to offer low-cost loans that serve as a safer alternative to payday lending.

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