Payday Lenders Face Greater Oversight

NEW YORK (TheStreet) -- Things have gotten harder this year, not just for cash-starved consumers, but also for a segment of the lending industry that has been yearning to provide them with credit, albeit at a high cost: The payday set.

State lawmakers have cracked down on payday lending and the prospect of more oversight in the form of a new consumer protection agency looms on the horizon.

At the end of 2008, 15 states had either tight restrictions or outright bans on payday loans, a term that typically refers to immediate cash advances on checks sought by people who don't have traditional bank accounts. So far this year Virginia and South Carolina have joined their ranks, while others, like Missouri, Wisconsin and Colorado, are considering such a move.

Other states have tightened restrictions, including Delaware -- the Disneyland of the banking world, known for its lax regulation -- which is forcing payday lenders to fund financial-education classes and advertising for low-cost, "community" lending programs.

The other whammy that could come hit the industry is federal regulatory reform. The consumer protection agency proposed by the Obama administration is working its way through Congress, and it's sure to take a hard look at payday lenders if it comes into being. Some proposals have suggested capping interest rates at 36%, just a sliver of a typical payday loan rate.