Do Payday Loan Borrowers Repay the Loans without Defaulting?
There are some safety measures that have been enacted by the state of Utah for borrowers of payday loans, asking the lender to introduce an extended payment plan. This interest free payment option has been incorporated into the policies under the influence of the trade association, for those borrowers who require more time to make repayments. This new practice will increase the value of payday loans as a better financial option for the consumers.
This option recently introduced by the state of Utah is similar to the one that has already been prescribed by the Community Financial Services Association of America (CFSA). This law enforced in the Utah allows the borrower the time of a few more weeks to make repayments without incurring any additional charges or high interest rates.
It was reported in a recent article published in “Salt Lake Tribune” that by the end of the year 2011, there were about 45,000 Utahans who were unable to repay their payday loan. This number presented in the article has been misinterpreted, as it cites borrowers that are enrolled in extended payments as well. The number of actual defaulters comprises of 7 percent of this amount.
It is therefore incorrect to declare borrowers as defaulters, if they are unable to make repayment after the initial period of 10 weeks. There is factual and clear evidence present supporting the fact that payday consumers tend to thrive and succeed, when using the product. Under the law of the state, these borrowers who make repayments after the declared time cannot be considered as defaulters as it will negatively affect their credit ratings.
There was another report published by the Consumer Financial Protection Bureau (CFPB) stating that about 55 percent of the payday borrowers do not acquire any additional loans, once they are done with paying their initial loans. In Utah, there was an analysis conducted in the year 2014 showing that only 9 official complaints were registered against the payday lenders and all of those were resolved by the regulatory bodies. Another similar and recent analysis was conducted of the federal consumer complaint data present in the database of CFPB, which revealed that there were only 1.5 percent complaints filed that were directly related to payday loans.
The major reason why the consumers avail payday loans is to get through a financial pinch, mostly for a short period of time. However, the bottom line is that for many consumers, a payday loan is the best and cost effective option, when compared to other loan alternatives. The inclination of the interest of the consumers towards this financial product can serve as a significant financial opportunity for payday lenders, to come up with more products to better serve the costumers who are in need of loans. However, although there are a number of advantages associated with payday loans, when it comes to serving the customers, this does not give us reason to neglect the need for reforms that would help in providing consumers with protection against unscrupulous lenders.