New Payday Loan Regulations by Obama Consumer Board – Beneficial For the Borrower
New restrictions on payday loans have been placed by the consumer board of the Obama administration which aims to stop borrowers from falling into the ‘dept trap’. According to The Consumer Financial Protection Bureau, payday lenders misuse their power and take advantage of the borrowers by giving such short-term loans that can’t be repaid, making it almost impossible for the borrower to get relief from the debt.
Now the bureau has put the much-needed restrictions on the payday lenders in place and the payday loans will need to undergo most of the underwriting requirements just like regular loans, which also includes a credit check to ensure that borrowers possess satisfactory monthly income. Moreover, those borrowers who’ve previously been unable to pay the loan will be prohibited from applying for future payday loans.
This action by the CFPB is also facing some opposition from the Bipartisan Group of Congress and they’re pushing for legislation so that the new rules don’t get implemented. However, the new rules have been immensely favored by the attorneys. The attorney journals of Alabama, Indiana, and Oklahoma revealed that payday lenders are greatly misusing their powers and gaining bad reputation in the market. Hence, with these new regulations, the poor borrowers will breathe a sigh of relief.
Some payday lenders also take advantage of those struggling with financial literacy. They impose such terms and conditions which can’t be understood by the borrowers. They do not know how it’ll affect them in future if they fail to pay the required amount within the short, pre-defined time period.
Therefore, those who fail to pay the money on time, face a financial catastrophe. The CFPB received many such official complaints by the payday customers since they started working in 2011. According to the officials, these complaints and long-term loss of the borrowers led to the development of customer-friendly payday loan regulations.
Payday loans are granted for a few weeks with usually 15 percent interest rate. However, some lenders charge as much as 75 percent interest rate along with a hefty loan fee. Because of this reason, a large number of consumers are unable to repay the loan in a timely manner and they end up renewing their loans. This leads to gradual stacking of annual percentage rate which climbs to almost 390 percent or even more.
The new rules of CFPB will be applied to all payday loans that have more than 36% APR along with free excess to the deposit account of the consumer, their car title, or paycheck as collateral. Also, according to the new regulations, the payday lenders will be required to check the borrower’s repayment ability and they’ll have to limit the total number of times to roll over a payday loan. Also, the lenders will be required to give an official notice to the borrowers before collecting money from their accounts directly, and they’ll be prohibited from repeated pinging of the borrower’s account for obtaining the money.