Well, the payday lending industry is a booming one so it was just a matter of time before new laws, procedures and restrictions were handed out. A lot of the information regarding payday loans can be found featured in The Chicago Tribune, but we’re here to inform you of the highlights of the laws. Keep in mind that these might not be the most desirable laws ever to be integrated but they were proposed for a reason and in the end you really can’t do anything but company regardless if you’re a borrower or lender.
Overview of the Rules
Basically what the CFPB (Consumer Financial Protection Bureau) aims for is to urge lenders to really make sure that almost all the borrowers they approve can actually pay the loans take apply for and they also want to limit the number of loans people can apply for. Of course these rules might also be implemented not just on payday loans but on loans that prove to be costly due to the high-interest rates.
Why the Implementation?
Bottom line of the reason is to protect the finances of the borrower. Majority of the borrowers are often drowned by fees and have no other choice but to repeat the debt cycle; this could actually lead to the borrower skipping bills due and making other difficult financial decisions. CFPB conducted researches and discovered that almost 80% of payday loans are actually just rolled over and over in a continuous cycle, this lead to all the piled up debt a borrower ends up with. Other than that, it’s discovered that about 45% of the overall payday borrowers take out a minimum of four loans in a row. Of course each of these loans comes with their very own fees thus leading to a bigger debt than they initially prepared for.
What Do They Really Require?
As we said, all institutions that offer payday loans and even short-term loans need to study the finances of the potential borrower and then decide of that person can actually pay the total amount of loans they applied for. There are exceptions to the borrowers depending on the profile, the lenders would not be required to look into the financial background of the potential borrowers if the amount they applied for is under $500 or if they applied for loans with interest rates under 36%.