Any time a person gets a loan, there are certain risks which are assumed by both ends of the agreement. The risk of non-repayment is the reason why there is interest attached to every loan. The problem is, there are some companies which have been taking advantage of the fact not everyone can qualify for a traditional loan. This has gotten even worse during the recession as banks put a freeze on any kind of risky loans.

The tight traditional loan market created a literal playground for payday lenders in states where it has been thus far legal to offer such loans. For the uninitiated, the way the loan works is the person applying for the loan brings in proof of income from their payroll services company. Once the loan is acquired, there is mandatory interest which is attached to it right away. The interest charged depending on which company is used as well as which state the loan is taken out in. Some companies have been known to charge as much as 400% for the interest on the loans they provide.

It is not hard to see how these kinds of loans make it nearly impossible for individuals to get out of debt. They end up paying all of their money just trying to stay ahead of the interest alone. The fact the loans are so easy to obtain causes a major problem in regulating the companies which offer the services. After all, when denied a loan at a traditional lender and these companies offering loans with nothing more than proof from small business payroll services for employment, it is hard for some people to turn down the loan.

Now, with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act which became law on July 21st, 2010 there is less to worry about. The loans which are allowed are more on a traditional basis and the interest rates are not as formidable. One of the main reasons why the law was passed was to eliminate predatory lending. It also was passed to put a stop to any kind of over the top interest rates.

While it is true there are some states which have circumvented the law by putting caps on the interest rates which are available for these kinds of loans, it still is safer than having to pay up to 400% interest or more. The Dodd-Frank Act helps in protecting consumers from not just the Payday loans. It also helps to protect consumers from bank loans with exorbitant interest rates or unfair payment structures.

The landscape is getting better for short term loans for consumers, but there still is ground to be won. The creation of the Financial Protection Bureau is a step in the right direction, but much more needs to be done in order to make the world of lending safe for all those who need just a little extra cash until their next paycheck.

Resource Nation provides free tools and purchasing advice for business categories ranging from phone systems to credit card processing. Connecting businesses with pre-screened vendors and offering easy service comparisons on a VoIP service, Resource Nation empowers business decision makers by providing the information they need to make smart choices.