The Consumer Financial Protection Bureau (CFPB) will release new regulations aimed at the payday loan industry in the spring, the agency announced in January. These regulations will help to reduce consumer abuse.
Research by Pew Charitable Trusts shows that 12 million people make use of payday loans every year, with the fees on these loans adding up to $7 billion. The average borrower uses payday loan services five months every year and pays fees of $520 on an average transaction of $375 every pay cycle.
Many expect that the new regulations will mostly affect the terms and conditions of the loans that regulate the interest rate and fees that can be accessed. While experts do predict the loans that are the most harmful to consumers will be blocked, they also believe that the industry as a whole will continue without much change for those payday loan companies that operate legitimately.
New measurable guidelines that can easily be enforced are expected. Most of these are likely to center around the borrower’s ability to pay back covered loans that must be repaid within a maximum of 45 days. The CFPB cannot regulate the interest rates on loans or ban high-cost loans, but they can create new guidelines detailing how repayments are structured. While the agency cannot create rate caps, they can create underwriting standards and regulations that force lenders to prove that borrowers can repay their loans, as well as set limits on junk fees and the number of times a borrower can refinance or rollover their debt.
If you are interested in a personal loan, visit our curated list of top lenders.
Photo ©iStockphoto.com/Kritchanut