More Federal Protections Needed against Payday Loans, says a Report
Payday loan lending is increasingly becoming popular in the US. Most people use these loans to meet cash shortfall until the next payday. The loan amount is usually small with the average amount being $375. Usually, the loan amount is repaid within a few weeks when the borrowers receive their pay.
A recent report published by an independent research firm in August shed light on the state of payday loan lending in the US today. The finding of the report reveals interesting insights about the short term loan and call to increased federal protections against predatory lending.
An Overview of the Payday Loan Report
US PIRG is a non-partisan and independent research firm working for the protection of public interests. The agency reported the present plight of payday loan lending in the US. According to the report, a number of people that are given the loans in the US can’t afford to repay the loans. This forces them to take out additional loans due to which they fall deep into a debt trap.
Interestingly, the report also says that some payday loan lenders force the borrower car titles as collateral for the loan. The report stated that they found that many borrowers end up losing their vehicles due to defaulting on these loans.
The research firm had analyzed complaints written to the Consumer Financial Protection Bureau (CFPB) by the consumers. About 91% of the complaints related to difficulty in paying back the loan amount. The complaints also pointed to abusive debt practices, long term debt cycles, closure of bank accounts, and bank penalties for collection attempt.
Also, the consumer watchdog agency found that more than 51% about the complaints filed to CFPB were targeted against just 15% of the companies in the US. These included Enova International, Delbert Services, CNG Financial Corporation, ACE Cash Express, and CashCall.
Over the past two years, about 10,000 complaints have been filed against payday loan lenders. The two common types of problems that were filed against the payday loan lenders related to unexpected fees or interest and communication tactics. They consisted of about 36% of the total complaints.
The report concluded that there is a need for greater federal protection against predatory actions of certain payday loan lenders. The CFPB had, in fact, submitted a proposal in June that addressed some of the problems highlighted in the report. For instance, it is suggested for the first time that payday loan lenders determine whether the borrower can repay the loan with enough money left to cover everyday expenses.
However, at the present, there is no known legislation under consideration that fully protects the customers against the risks of predatory payday loan lending. It’s up to the consumers to take proactive steps to protect themselves from the risks associated with the short term loan. Apart from that, they should also remain vigilant about bogus and fraud online payday loan lenders that lie in wait for unwary individuals to rob them of their hard-earned cash.