Monthly Archives: June 2016

How Will Short Term Loans Be Regulated Under the Proposed Payday Loan Changes from the Consumer Finance Protection Bureau

The Consumer Financial Protection Bureau has made a proposal of a new legislation that aims on short term loans like payday loans, auto title loan providers and cash advances that charge exorbitant interest rates. The purpose of the proposal of this legislation is to prevent the needy people from falling into a debt cycle while obtaining this type loan to cover their basis expenses. This is to protect the people who live on an unstable paycheck income from month to month.

Under the CFPB proposal, lenders must perform a full payment test to evaluate if the borrower is able to pay back the loan. Lenders are responsible for making sure that the borrowers can make the repayment as well as meeting their basic living expenses at the same time. The lender will have to asked the borrowers for income proof, and other debts that they have for example home mortgage.

The CFPB will attempt to end the debt trap cycle by putting some restrictions on the refinancing of the loans to the borrowers. The new legislation will prevent lenders from issuing the same loan to the borrower within a period of 30 days. The statistic report in CFPB claims that over 80% of the payday loans are refinanced in a period of one month.

The CFPB will also be regulating the penalty fees. Borrowers are often required to set up automatic debit with their bank account which gives permission for the payday loan company to collect the owed amount on the due date. However, if the account does not have enough funds, the borrower’s account will be charged with penalty fees from the bank and the lender.

The new rule will require lenders to issue a written notice to the borrower at least 3 days in advanced before they proceed to deduct the amount from the account. The written notice will provide information on how much money they will deduct from your account.

The government will set a limit on the amount that first time borrowers can borrow from payday loan companies. Nick Bourke, the director at The Pew Charitable Trusts said that banks can actually help these borrowers who want to borrow small loans but they can’t due to the lack of federal standards.

Many borrowers who support the legislation suggest that they also include an interest cap in the bill. The reason why many people are losing their possessions through payday loans is because of the high interest rate that is as high as 390% and they only have 1 month to pay back.

The people in Missouri want the government to put a 36% cap on the interest rate. But, the companies that offer short term loans have been fighting back as the significantly lower interest rate will cause them to