Through the years, legitimate and trustworthy payday advance lenders have gained and continue to gain credibility in the eyes of U.S. lawmakers. The legislative tools and political endorsement provided by the latter have contributed to and ensured an overall transparent, welfare-enhancing and consumer-friendly fast payday loan industry. Legislators have sent a clear, mutually-consistent message condemning and cracking down on unscrupulous payday cash creditors, while backing the service provided by honest and responsible payday loan businesses.
Presently, usury caps or small loan laws banning payday cash at a triple-digit rate of interest are in effect in only twelve states. The majority of states have liberal payday lending laws. Legislation proposed in recent years has been, for the most part, in favor of the payday loan industry, and there are solid justifications for this legislative support. Lawmakers' defense of reputable payday cash advance companies is premised on the following substantive arguments:
1. The average payday lender serves a critical financial need by extending emergency credit to consumers faced with a short-term cash crunch. Since most lending institutions do not offer such high-risk, short-term loans, the payday advance loan plays an indispensable role in catering to this financial niche, which would otherwise be neglected and further endangered monetarily-speaking.
2. Another reason why the government should not legislate emergency payday cash advance loan providers out of business is because payday cash loans are more affordable than other alternatives.
3. Legislators also maintain that the majority of borrowers utilize payday cash in a responsible manner.
4. Lawmakers also contend that a higher risk necessitates increased payday loan charges, and that laws should not tamper with natural market forces.
Earlier this year, the Virginia-based Community Financial Services Association (CFSA), a trade organization representing approximately 60% of the nation's payday advance providers, issued proposed adjustments which won the support of numerous members of Congress. Among the voluntary reforms to be implemented by the CFSA members are 1) the addition of new language to all promotional material warning consumers that "payday advances should be used for short-term financial needs only, not as long-term financial solutions" and 2) a prohibition on advertising payday cash for "frivolous" objectives such as vacations, entertainment or gambling. One of the most significant changes to be adopted by CFSA member creditors is an offer to borrowers experiencing difficulty in repaying their loan to enter into an extended payment plan (EPP). The CFSA's proposals struck a chord with at least 49 Democratic legislators who sent a letter to Representative Barney Frank (Dem-MA), chair of the House Committee on Financial Services, requesting that he endorse "an unprecedented proposal that we believe will have far-reaching benefits to consumers and protect borrowers from the cycle-of-debt trap that is the hallmark of unscrupulous lenders."
In the state of Washington, at least 14 bills aimed at imposing stricter regulations on payday advance lenders, were submitted for consideration during the 2004/2005 legislative session. Nine of the most stringent recommendations stalled in the legislative committees and never made it to the congressional floor. Asked recently about the possibility of supplemental federal laws on the cash advance loan, Senator Christopher Dodd (CT), who heads the Senate Banking Committee, replied that "striking that balance [between ensuring loan options and protecting borrowers] is easier said than done."