3 Ways New Rules Restricting Payday Loans Will Help Consumers


There are new regulations coming up that aim to help borrowers get tricked by payday loans. The rules, put in place by the Office of Consumer Financial Protection, provide long-needed protections for people who fall into despair and risk excruciatingly high interest rates to borrow money so they can pay their bills.

Of course, not everyone is happy with the changes, which won’t take effect until July 2019. Advocates of the payday lending industry, who collected $ 3.6 billion in fees in 2015 , say lenders play a vital role in helping people. otherwise, you are not eligible for a loan to make ends meet.

But the Consumers Bureau, headed by Richard Cordray, appointed by the Obama administration, said in a summary of the new constraints that he identified “as unfair and abusive the practice of making or increasing credit available” to a borrower “without reasonably determining that consumers have the capacity to repay loans on their terms”.

For years, Bridge Payday Lender – who lend people money on the assumption that it will be paid off within a very short period of time (such as on a next payday) – have had their hands full in the business. short term loans. The exorbitant interest fees charged to borrowers have threatened to turn the industry into a racket, critics say, with some borrowers falling into serious financial trouble after being hit by triple-digit interest rates.

RELATED: Payday loans hurt finances more than they help

But what exactly are we talking about and how are consumers really affected?

Here are three ways the new payday loan rules will help consumers

  1. Avoid over-indebtedness: After a consumer has borrowed three times in a 30-day period, a mandatory 30-day “cooling off period” comes into effect. During this period, the consumer will not be allowed to borrow unless at least one third of the previous loan outstanding has been satisfied.
  2. Verification of mandate income: Believe it or not, many payday lenders don’t check a borrower’s monthly income – they don’t have an incentive to do so. If you don’t pay, your warranty – in many cases your car – will become theirs. With the new rules, lenders must verify the consumer’s net monthly income and the amount of payments required for the consumer’s debt to be paid.
  3. Control payment withdrawals: Gone are the days when a lender can keep tapping your zero-balance account, triggering those insufficient funds charges. The new rules state that lenders must provide written notice before a first attempt to withdraw loan payments from a consumer’s account. When two consecutive withdrawal attempts fail, the lender must obtain authorization from the borrower again to attempt another withdrawal from the same account.

Written in 2013, the payday loan regulations have been somewhat of a mainstay of Cordray’s tenure, which doesn’t officially end until next summer, but may well expire before that. He would seriously consider running for Ohio governor in 2018.

The Consumer Financial Protection Bureau, established in the aftermath of the 2008 financial crisis, has achieved a number of crucial victories during its short lifespan.

Democrats, who have defended the agency – particularly Senator Elizabeth Warren of Massachusetts – say the office has saved consumers over $ 12 million in reimbursement and other relief, including giving them the right to bring class action lawsuits against companies rather than dealing with individual cases, reports the Los Angeles Times.

So when the rules come into effect, will the payday loan industry go bankrupt? Barely, says Dennis Shaul, CEO of the CFSA industry group. He told CNN Money that even if payday lenders only make an “average 4% return on investment,” they will adapt to the times by likely offering new products that meet new government standards. “We are not making obscene profit off the backs of people,” he said.

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