Short-term Loans versus Credit Cards

There has been a lot of reports out over the past few weeks about the short-term loan industry and the new laws and regulations that many states have been putting on the books. In most cases there restrictions are put into place to do two things. One, is to protect consumers from what is called predatory lending practices, and the second is to protect the state from lawsuits and bailouts. However, the first reason is somewhat short sided and is only looking at one industry, while trying to say it’s protecting people from predatory lending. However, the big gripe that I have is where are the restrictions and protection for people against predatory lending in credit cards.

Credit card companies to me are worse than short-term loan companies. There are few reasons for that and I’ll explain them below in detail.

Short-term loans are getting heavily regulated with the amounts they can charge, fee limits, and other restrictions such as how many loans a person can have at one time, and in some states all at ban of short-term loans.
Credit card companies aren’t as regulated, can charge what ever interest and fees they want, and there is no limit to what fee amounts they can charge. This means that a person with say a $50 balance, ends up paying late because of some unforeseen event. They are then charged a $40 late fee, which is about 80% interest, and they are only suggested to pay the minimum. Now that person pays the minimum amount each month of $10 and has an interest rate of 10%. They would wind up paying well above $100 for an original balance of only $50. Whereas they could have taken out a short-term loan for $100 and only had to pay back in some cases the balance plus a $15 fee.
Credit card companies continue to solicit for new members, send out fliers, pre-approval letters, and even tele-marketing calls to get people to sign up for their programs. However, the short-term loan industry doesn’t do any of these things. When was the last time you got a letter in the main from any online payday loan place telling you that you’ve bee pre-approve for their loan. Or, get a tele-marketing call from a payday loan place asking you to sign-up, get some sort of consumer protection, or even to sell you on some other services.
The fact is that credit card industry is much more predatory than the short-term loan industry. Credit card companies are out looking for new members, tacking on fees like annual memberships, over-the-limit, paying late, and a slew of other reason, as well as no limit on the amount of interest they can charge. For example, I got a letter in the main a few weeks ago telling me that my credit card policies were changing, and that my interest rate was going up. I’ve been paying on time, and have a good account, but yet they are able to increase my interest rate without giving me a chance to try to lower it.

For years I’ve been watching the credit card industry get away with things that I would call predatory lending, yet they are still allowed to do the same things today without any consequences, while the short-term loan industry is getting hit almost daily with new laws and regulations. I personally would like to call for tougher regulations on the credit card industry along with the short-term loan industry. It’s not that I don’t think the regulations are good, but on the contrary, I would just like to see it expanded to protect consumers and states from credit cards as well. To find out more about payday loan laws in your area you can visit your state’s authority on financing.