Government cracked down on predatory loans

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payday loans


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The Consumer Financial Protection Bureau on Thursday proposed new rules that represent the federal government’s first attempt to regulate payday lending, an industry that provides quick and small loans to those strapped for financial resources with interest rates as high as 400% or more.

Ssome states have tried to crack down on the astronomical interest rates and fees that payday lenders impose on their generally low-income borrowers, but no national action has been taken to limit their activity to date.

New CFPB rules aim to address the quicksand-like ‘debt trap’ many people who borrow from payday lenders find themselves in – most people who use payday end up rolling them over when they mature or by borrowing again soon after their initial loan. All the while, interest and fees are mounting rapidly.

“Too many borrowers looking for a short-term cash flow solution are struggling with loans they cannot afford and are going into debt over the long term,” said CFPB Director Richard Cordray, in a press release. “It’s a bit like getting in a cab just to cross town and get stuck on a trip through the ruinous country.”

According to Washington Post, a rule proposed by the CFPB would require payday lenders “a cooling off period after three consecutive payday loans“. As the To post Note, CFPB data shows that 45% of payday clients successively borrow four or more loans, and 15% end up borrowing 10 or more.

    Protesters from


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The second rule requires that payday lenders consider a borrower’s actual ability to repay the loans they end up receiving. This means looking at the income and credit of customers and limiting loans to those who can afford the loan. There are major exceptions to this, including if the loan is $ 500 or less. This is a relatively high cut-off rate, given that low-income borrowers can often quickly get trapped in four-figure debt after taking out a few loans worth a few hundred dollars.

The To post reports that the rules will be overhauled for months to come and face potential legal hurdles before they come into force.

The payday lending industry is agitated over the new rules, saying limiting its ability to provide loans will cripple its business model. But if your business model is based on trafficking the most desperate members of society for money – payday lenders collect 75% of their loan fees from customers who have more than 10 loans per year, according to the Center for Responsible Lending. This is probably something that needs to be watched closely.



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