New Regulations Target Payday Loan Industry

 Posted on October 07,2017 in Debt Collection

The Consumer Financial Protection Bureau has created new regulations meant to protect borrows against risky short-term and long-term loans with balloon payments. Commonly known as payday loans and vehicle title loans, these types of loans are usually issued in storefronts and online to consumers who need immediate cash and have difficulty obtaining a traditional loan. The CFPB claims that creditors who issue these loans use unfair and abusive practices by giving loans that they know consumers will be unable to repay and being overly obtrusive in their collection methods. With the new regulations, the CFPB hopes to make the payday loan industry adhere to some of the standards established in other credit industries.

Which Loans Are Affected

The CFPB says that the rules will apply to two types of loans:

• Short-term loans lasting 45 days or fewer; and
• Longer-term loans with a cost of credit that exceeds 36 percent per year and that use a consumer’s bank account as leverage.

Many payday and vehicle title loans are for less than $500 and are due in 14 or 30 days. As collateral, debtors use their vehicles or provide the creditors with access to their bank accounts. If the debtor cannot repay the loan, the creditor will make withdrawals from the account or possess the vehicle. To avoid these penalties, debtors may roll over their debt into a new loan.

The Rules

The CFPB believes that the payday loan industry’s practices are trapping consumers in a cycle of borrowing and increasing debt. The industry argues that it is providing a credit option for consumers with lower incomes. The new regulations will go into effect in 21 months and state that:

• A creditor must assess whether the consumer will be able to repay the loan before issuing it. The process should include determining the consumer’s monthly income, expenses and other debt obligations;
• After issuing three loans to a borrower, the creditor must wait 30 days before it can issue another loan to the borrower; and
• A creditor must inform the debtor before it attempts to withdraw the money owed from the debtor’s bank account. The creditor also must cease trying to debit an account after two unsuccessful attempts, unless the debtor gives the creditor permission to continue.

High-Risk Debts

Critics believe that the payday loan industry preys on consumers who should not be obtaining loans. Reputable creditors understand the importance of evaluating their clients before issuing loans. If a debtor is unable to repay a loan, the creditor risks losing money on its investment. A Chicago debt collection attorney at Dimand Walinski Law Offices, P.C., can advise you on the best legal methods to recover your debts. Schedule a consultation by calling 312-704-0771.

Source:

https://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/payday-vehicle-title-and-certain-high-cost-installment-loans/