Consumer Financial Protection Bureau (CFPB) plans to make payday lenders life better. CFPB plans to abolish some of the borrowing limits.
There are two of the most discussed limitations, according to the published plan.
1) “Ability to repay” standard. Following this rule, payday loan lenders must check the borrower’s ability to pay the debt. This rule was implemented to prevent borrowers from falling into a debt trap. Cancelling this rule will result in increasing the number of loans issued.
2) The second task is the abolition of the “roll over” limit. Whereby, the borrower can refinance the debt more frequent.
Will be these changes positive to the payday loan industry?
On the one hand, the news will please everyone. Lenders will raise payday loan volumes, and more people will get access to funding. But there is a reason to concern.
Payday loan percentage rates can be very high. Borrowers with low payment discipline or those who have failed to solve their problems at the expense of a loan will be forced to borrow more and more. The consequence of this step may be the increase in bad debts share. The number of borrowers with a bad credit history will also increase.
Some borrowers have already faced the problem of payday loan repayment. Instead of getting a loan for a couple of weeks, the borrower gets into a debt loop and pays it for many months.
Is it really worth it?
Reducing unemployment in the United States and lowering taxes should have a positive impact on the welfare of citizens and lenders should have been facing a decline in their sales. Should payday loan lenders solve their problem with the increase of bad credits?
Lenders and borrowers will benefit from the right balance between possibilities and limitations. Otherwise, the industry can sink in toxic debt ocean.
Update, June 2019
CFPB delays compliance date for payday lending rule until 19 November 2020.
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