Payday lending institutions accept checks that are post-dated in exchange of a cash payment. The short term loans have a lifespan of two weeks although the repayment period may at times be extended to one month. Every state has its own laws regulating the payday lending institutions and in each of them, they are a bit different. The aim of all the laws is to protect the borrowers from unscrupulous lenders. In the state of Iowa, payday lending is legal. This is according to Iowa Code Ann. & 533D et seq.
Basically, there is no one who is not qualified to apply for the payday loans. There are few requirements though such as having a permanent source of income and a checking account. In the state of Iowa, it is mandatory for the applicant to be at least 18 years old and they should prove this using a national ID. The applicant should be in employment for a period of time though at times it is sufficient to have a proof of income such as social security funds.
According to Iowa laws, borrowers are not supposed to be given more than $500. The loan should be paid with a maximum period of 31 days. Iowa laws do not allow rollover and this means that when the time for the cashing of the check comes, the borrowers can’t pay a fee to have the repayment period for the loan extended. The lender on the other hand isn’t allowed to charge fees and finance charges that are more than $15 for a loan of less than $ 100. For every amount of $100 that is borrowed thereafter, the borrower is allowed to charge an amount of $10. For an amount of $100 that is borrowed for a period of 2 weeks the finance charge amount is $16.67. For every 100 dollars that is borrowed for a fortnight, the APR amounts to 433%. The typical rate of interest for a rollover loan ranges from 300% to 400%.
The Iowa laws allow a borrower to have more than 2 outstanding loans at any given time. These should not exceed more than $ 500. The lender on the other hand isn’t allowed to charge more than $15 as fees for non-sufficient funds or even for bounced checks. As at now, there isn’t a definite regulation in regard to criminal action against default payments. However, there is only one thing that is prohibited: The lender threatening the borrower with criminal prosecution in whatever ways.
However, there are definite regulations in certain accounts. The borrower is supposed to get detailed contract that is written in both Spanish and English. The contract should contain all the details of the payday loans such as fees, terms of repayment and many more. The contract must be written in layman’s terms. It should contain all the lender’s contact information and a toll free number that the borrower can call in case of any questions or problems. The borrower is also supposed to provide the full contact information to the lender. It is only when these terms are complied can a payday loan be considered as legal.
On the national level, according to the 2007 defense authorization bill, the payday lending to the military personnel was capped at a rate of 36% APR. There is concern over the success of the payday lenders in evading the state laws. Despite the relatively strict laws enacted by Iowa, the payday lenders still charge an interest of 284% APR in the state. The lenders also evade the rollover laws by issuing 2 checks at the same time. This enables them to give new loans after every two weeks. For instance, a borrower can get a loan of $300 and give the agency a post-dated check of the same amount. If they don’t have enough money in their account when the check becomes due, they can return to the lender and take a new loan of $300 to clear the balance. This is equivalent to counteracting state legislation that bans a loan rollover. On top of this, the capping of the interest rates is based on the loan’s life rather than the APR. The online lenders are also known to be a threat to the enforcement of the state laws. But where the lender is found to be flouting the state laws, the payday loan cannot be considered as legal.