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Business owners say FTC crackdown on payday lenders is unfair

There is a famous saying probably all of you have heard which is: one bad apple spoils the bunch. The phrase suggests that the bad actions of one person can easily affect the group. And in the case of payday lenders, this statement couldn't be any truer.

If you happen to have read the recent Washington Times article regarding payday lenders, you'd know that there are some business owners who are less than thrilled with the federal government and its efforts to protect consumers from deceptive lending practices. That's because federal operations, such as the infamous Operation Choke Point, have actually caught innocent businesses in the crossfire, oftentimes resulting in lost investments and closed businesses.

As you may have read, Operation Choke Point was designed to weed out businesses believed to be using corrupt business practices. It created a watch list of industries, including payday lending, believed to be a high risk for money laundering.  In the case of payday lenders, it was believed that some of these businesses were purposefully deceiving consumers about the terms of the loan, thereby violating state and federal consumer protection laws. By putting some of these businesses on a high-risk watch list, the Federal Deposit Insurance Corp., or FDIC, sent the message to lenders that it might not be a good idea to do business with any of them.

Unfortunately, a lot of legitimate businesses that had been following the law may have been swept up in the mix, resulting in lost lines of credit. Unable to front money to consumers, payday lenders across the nation have been forced to close their doors because they are unable to sustain their business any longer. In other cases, some payday lenders have even faced litigation for the way they run their business.

Here in California, there are strict regulations on payday lenders. For starters, lenders are only allowed to give one loan per borrower that does not exceed $300. The maximum fee charged also may not exceed 15 percent of the total loan, which is subject to change if the consumer is a military service member. On top of these regulations are other laws that, if not followed, may lead to prosecution and litigation.

Because of the recent push by federal agencies to reign in payday lenders, business owners here in California will need to make sure that they are adhering to the law. With the help of a lawyer, they can make sure that they are doing this and hopefully avoid any unnecessary litigation down the road.

Sources:  The California Department of Business Oversight, "What You Need to Know About Payday Loans," Accessed March 27, 2015

The Federal Trade Commission, "Payday Lending," Accessed March 27, 2015

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