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New Laws

On January 1st of 2010, a multitude of new laws changed everything from tanning to puppy mills. In Kentucky, Washington, and Virginia, new laws concerning payday lending also went into effect. Similar laws are being considered in Mississippi, and many other states.

Limitations in Kentucky

In both Washington state and Kentucky, a database of payday borrowers is being created that will track all borrowers and their loans. In Kentucky, borrowers will be limited to two loans totaling no more than $500 at any one time. These laws are designed to ensure that lenders do not over-lend to borrowers who may be overextended.

New laws in Washington state

In Washington state, borrowers will be limited to eight payday loans in any twelve-month period. Borrowers will also be barred from taking out multiple loans from different vendors. With borrowers in the universal database, lenders will be required to check that database before offering a loan to any customer.

A public sector option

Virginia is taking a more public-sector approach, offering state employees personal installment loans that are paid back through direct debit out of their paychecks. At a lower interest rate than most payday loans, these installment loans offer public employees an option outside of the established payday lending system. However, these loans also become a part of the employment and payroll records of that employee.

Being responsible with debt

Many states are considering new regulations on payday lending and lenders. There are many people that misuse payday lending and get stuck in bad situations. Rather than addressing the underlying problems that cause the need to misuse payday loans, these regulations just limit the resulting effects. The important thing to remember is that payday loans and personal installment loans can be used very effectively as one-time assistance in tough financial situations.

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People younger than 21 can no longer get credit cards on their own.

When a new piece of legislation takes effect in February, anyone younger than 21 will need a cosigner older than 21 to get a credit card. I believe this is a very positive step that will keep a lot of people from getting deep into debt.

If I hadn’t gotten a credit card when I was 18, I know I’d be a lot better off. I racked up so much debt on my credit card by the time I was 21 it seemed it was already too late to get out. Years later, I am still paying off purchases I made while I was in college.

Start of a credit catastrophe

It’s this type of mentality that keeps people going deeper and deeper into debt. I figured I already owed thousands of dollars on my card, what’s a few hundred more? Many college students and graduates feel the same way, so they keep their cards maxed out and eventually need credit counseling to figure out how they will ever overcome their debt.

I think if I’d had a few years after I moved out of my parents house to learn to live without a credit card, it would have been much easier to go without one or to use one responsibly. But alas, an 18-year-old with a credit card who is on her own for the first time is a dangerous thing with possibly lifelong implications. I am glad legislators see this and passed the new law.

Implications to credit card industry

If my prediction that not allowing people to get credit cards until they are 21 will cause a lot less debt and much more responsible use of credit in general, it could have huge implications for credit card companies. Personally, if I had not been allowed to get a credit card until I was 21 I might have never gotten one at all.

I think and I hope that this will be the case for many young people, who will realize they can survive without using credit and spending thousands on interest alone. I think this new law could greatly reduce the use of credit cards, which is great news for society but could potentially bankrupt the credit card industry.

I guess creditors should start looking for new jobs now.

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