New Of Set Of Rules
According to NBC News, there is a new set of rules that have been designed by Federal regulators, to provide protection to borrowers, from the “debt traps” laid for them by the financial institutions.
These set of rules are expected to help the 19 million Americans, who rely on these loans when addressing their financial emergencies. The objective of the implementation of these rules is to impose a ban on the practice that is termed by the Federal regulators as “Predatory Lending”.
New set of Rules proposed by the Federal Government for the Payday Loan Industry in the US
The new rules, with reference to the payday loans were laid out by Richard Cordray, the chief of the Consumer Financial Protection Bureau. However, it is quite obvious that the set of rules introduced require a lot of work from the financial institutions and private lenders.
While introducing Americans to these new set of rules, Cordray added, “Lenders making short-term loans would be required to check upfront whether the borrower can afford to pay the full amount of the payment when it comes due, without needing to re-borrow”.
According to these loans, there is now a limit set on how frequently the lenders and borrowers are allowed to roll over payday loans into pricier and newer ones.
He further added that the rules are designed to provide protection to the borrowers, who are not able to pay back the amount of the loans and then are forced to take new loans, at a higher interest rate. The enforcement of these rules will affect 36 states in total and 16,000 payday lenders, located across the country.
How the rules will contribute in making a difference in the payday loan industry?
The financial institutions and other private lenders need to take a deeper look into the finances of the borrower, to ensure whether they will be able to afford the loan or not.
The only condition when the lenders are not allowed to conduct a financial background check on the borrower is when the loan amount is $500 or less, given at an interest rate of 36 percent or lower.
But still, these loans are subjected to rules defining the number of times the borrowers are allowed to roll over their loans into a cycle of payday debt. After the sanction of the third loan, the borrowers would enter into the “cooling-off period”, where they are exempted from taking another loan for the next 30-days.
Also for small loans amount like $500, the borrower is obliged to pay a certain amount of their debt, each time they decide to roll over.
When does the Federal Government plan to enforce these set of rules?
Before announcing the final version of the proposal, it needs to undergo a comment period. It may take a year or so, before the process is finalized by the Federal government.
The proposed set of rules is the measure taken by the Federal Government to ensure maximum protection of the borrowers in the payday loan industry, which will foster the growth and prosperity of the loan industry in the long run.