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Business Law Paper

1255 words - 6 pages

Predatory lending exists when a loan has a significant impact on a borrower’s life. Often times predatory loans are grossly over-priced, unsuitable to the borrower’s situation, and deceptive in nature. An example of this type of loan is a payday loan. Payday loans are unsecured, small, high-interest, short-term loans that need to be repaid by the next payday or within two weeks. These loans though temporary and minute in nature are unfortunately most used for recurring and serious charges such as mortgages, credit cards, and other recurring expenses.

Utilizing this economic problem to their advantage, payday lenders become predators in search of those in need of financial help. Payday ...view middle of the document...

The Federal Trade Act overall prohibits “deceptive acts or practices in or affecting commerce,” and (15 U.S. Code § 69a (a)) particularly marks out; “falsely or deceptively advertised or invoiced” products are unlawful and unfair competitively. The Truth in Lending Act also prevents unfair and deceptive business practices from taking place. The Truth in Lending Act ensures that financial institutes involved with consumer lending will fully disclose financial information to their consumers (15 U.S.C. 1601 et seq.). Some of the most common violations of the act are not clearly defining fees or APR rates, and failing to disclose certain requirements. There are a number of heavy fees attached and even potential jail times for failing to comply. The next statute that applies is the Credit Practices Trade Regulation Rule (CPTRR). While the other statues have generally nonspecific and broad implications, the Credit Practices Trade Regulation Rule can specifically apply to wage assignments. Wage assignments are agreements that give the creditors the power to ask your employer to take money from your wages if you are unable to pay back your debt (16 C.F.R. Part 444). The CPTRR prohibits them entirely. The next act, the Electronic Fund Transfer Act much like the Truth in Lending Act, provides much needed disclosure about what amounts can be taken from an account and when they can be taken out (15 USC 1693 et seq.). Overall these acts all work together to prevent abuse of the system and from payday lenders from praying on those who are financially desperate.

In contrast to the uniform nature of federal statutes, law that applies at the state level varies completely. In the United States, there is variance in the protection offered against payday lenders. On one end of the spectrum, there are states that have outright prohibited payday loans and others, like Texas, that have kept a hands-off approach. This approach can be seen through the states handling of APR rates. The limits set by the Texas Administration Code establish a range for maximum finance rate and fees with a 569.92% APR for a 7 day, $100 loan being the most that payday lenders can charge (7 Tex. Admin. Code § 83.604). This is astronomically high in comparison to other states. Texas law also differs from other states in that it shifts better to their consumers. Potentially enacted H.B. 420 of the Texas Administrative Code requires certain notices and disclosures provided by credit access businesses to be in foreign languages.

By placing these regulations, states are keeping predatory lenders from taking advantage of people, improving moral concerns, due to misinforming. Congress is working on banning payday loans all together due to its impact on low-income families who utilize them and the bankruptcy it...

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