Are The New Laws On Payday Loans For Public Interest?

We have all come across the news that the Consumer Financial Protection Bureau (CFPB ) is all set to put on restrictions on the payday loans. It is believed that it will bring about a political battle as because people believe that their interests have been obstructed. Those who are standing against the regulations say that this is an inconsistent move on the government hurting the interests of the middle-class Americans. The supporters claim that this extreme move is the outcome of the prevailing practices. They say that this approach is directed towards the consumers who had been facing financial issues.

Do you know what a payday loan?

It is a small loan which can be acquired from a  bank or a financial institution which offers loans on shorter terms. These loans are not available to everyone. Suppose you are a businessman having to deal with several of your clients every day.You cannot avail the facilities of the loan. The loan can be applied by someone who works in an office and is a loyal employee. If he or she undergoes a situation of financial crisis and needs a small amount of help can apply for the loans. The loan may be available within $150 to $400 repayable in a few weeks.

Why do people prefer these loans?

Majority of the people belongs to the middle-class society. They live from paycheck-to-paycheck and are left without any savings at the end of the month. For them, these loans are a very convenient option to overcome the sudden financial crisis. These loans are available without a credit assessment and the cost ranges from $15 to $20 for each $100 taken.

To assure the lenders that the borrowers can pay the loan, they provide the lenders a direct access to their bank accounts. As soon as money is credited to the account, the lender can deduct the repayment installment. In certain cases, the borrower’s personal asset is taken into account in the case he fails to repay the loan amount.

Why are the restrictions being introduced?

As per the regulation announcement earlier in October this year, small cash advances regulations are subject to undergo changes from 2019. The reason for introducing these changes is because of the two types of borrowers in the market. The first group is the “cautious” group, who do not require these loans frequently. They are regular to pay their dues. Another group is called the “heedless”. This group is in continuous indebtedness. They frequently need loans and do not bother about paying back.

What will be the effect of the new rules?

The new rules by the CFPB are all set to shut down the access of the heedless froup to these loans. From now on the lenders will have to determine the capability of the borrower to repay the loan while being still able to meet their standard of living. In order to do that the income of the borrower will be verified and if they are having any major financial obligations. This rule is a  major threat to the financial market and claims to wipe out the companies from their business.  Due to the documentation requirements, the origination charges for the loan are said to increase. It will become a burden on the underbanked borrowers. The companies will be losing their profitable part as the number of heedless borrowers is the most in number.

Going back to the question mentioned above, we find from the consumer’s point of view that the new regulations on the payday loans are not at all a boon. The majority of the people who used to manage their finances with the help of these loans will now come under a lot of financial pressure.

Luann Abel posted at 2017-12-26 Category: Payday Advance