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Delaware Becomes Next State to Pass Legislation Limiting Instant Payday Loans

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Currently, there is no limit to the number of payday loans a Delaware resident can take out over any given time period. But that will change on January 1, 2013 when a new law, patterned after similar laws in Washington and Illinois, takes effect. Payday lenders are anticipating changes in their systems and reporting as more states could follow in Delaware’s footsteps.

Under Delaware’s House Bill 289, borrowers are limited to taking out five payday loans of $1,000 or less in any 12-month period. Loan rollovers and refinancing are included in that number and timespan. The bill also creates a statewide database that tracks the number of payday loans a person has obtained. The law requires the state banking commissioner’s office to provide the General Assembly with a report on the frequency and nature of payday loans.

Currently, thirteen other states ban payday loans entirely. Twenty-one other states including Maryland, Pennsylvania and New Jersey prohibit borrowers from rolling over their payday loans to avoid compounding interest rates, which cuts into lenders’ profits.

After Illinois enacted a payday loan reform law in 2005, the state reported a steady drop in the number of unique borrowers through 2008, from a high of almost 120,000 in 2006 to approximately 80,000—a drop of 20.4 percent.

Washington limited the amount of money that borrowers can obtain. The state’s goal was to limit the amount the borrowers would be liable for by capping loan amounts. The state also limited the number of loans that can be borrowed in a 12-month period, similar to Delaware’s new law. Again, loan limits impact profit margin.

Thirteen states maintain statewide databases to track payday loans, like the one soon to be implemented in Delaware. Newly mandated databases could mean changes for the way our lender customers’ operate, making for more reporting procedures, and requiring more resources.

As an Online Lenders Alliance (OLA) board member, I’m working with online lenders and others in the lending industry to protect the interests of call center customers, not only in Delaware, but also in other states. Legislation that limits payday loan amounts, restricts the number of loans a consumer can get, and tracks borrowers certainly change payday lenders’ profits and resource usage. And the trend seems to be gaining momentum.

Be assured that Centrinex is working on behalf of our call center customers to help minimize financial impact and increase awareness, keeping online lenders informed and in compliance with state laws.