The new rules proposed by the federal regulators will strictly restrict the payday loan practices. Primarily the new rules require the lenders to ensure that the borrowers can repay their loans in time. The lenders will have to report the loans given to credit bureau kind of entity to track the number of loans owed.
The rules introduced by CFPB will not ban all auto title loans, payday loans or other high cost loans but they will definitely put a check on lenders activities to ban those who charge over 400% of interest from borrowers and put them under the vicious circle of debt.
Richard Cordray told in an interview that, “The bureau is introducing stringent protections are designed to end the payday debt traps”. There are a large number of borrowers who settle for payday loans for temporary cash fix and are unable to come out of the debt trap later on. It is similar to hiring a taxi for a short term ride and finding yourself trapped in an expensive cross country journey.
When applying for payday loans, a consumer can take out a small loan to be paid back in 14 days by paying. These loans are accompanied by high rates of interest and other associated fees. A loan of $500 if not repaid in 2 weeks time, the loan is rolled over and more fees and interest is applied on it. People who are in favor of payday loans try to push back the latest rules with their strong comments. American association of financial services representing the non bank lenders says that payday loans are an essential source of credit for millions of US citizens.
There are over 24 millions houses that don’t fit into mainstream banning system. There are over 16 million households that will take one payday loan each year and as per CFSA report 47% of Americans are unable to pay $400 loan without selling some of their things.
These regulations will put a stringent check on consumers taking payday loans to manage budget and unexpected expense. It is on one hand even safe for borrowers as they usually end up paying 100 times more than what they initially took as loan.
Federation bureau also shows that over 4 in every 5 payday loans are borrowed again within month’s time. One out of 5 loans end in default loans and borrowers end up in having their truck, car or other pledged items seized by the lenders.
payday loans in Ohio activity is only helpful in managing emergency cash requirements only for people who have stable income and are able to repay the loaned amount in the given time frame. Defaulters should be checked before giving them loans by the lenders, of course this will put a serious blow on their business but keeping it a customer oriented company makes it even better.
Favorable choices for lenders and borrowers can not only make this industry bloom further but its bad reputation of trapping under loans will also be cleared.