Will clients be able to help them?
Creditors who give payday loans to people who do not have money should first check whether customers will be able to repay their loans, according to a new rule that was adopted last Thursday.
The rule, adopted by the Consumer Protection Board, suppresses repeated attempts by creditors to charge fees from clients’ bank accounts, this practice removed fees from the client and could lead to the closure of the account.
“These measures need to be applied in a market where lenders are very often in the lead, forcing borrowers to fail,” CFPB Director Richard Cordray told reporters at a conference call.
This rule will come into force 21 months after its publication in the Federal Register.
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“It’s not easy to believe that within days of the CFPB reported that more than four out of ten Americans are struggling to pay monthly bills, often because of unforeseen expenses – the Bureau will lead Americans to pawnshops, offshore lenders, high-paying installment lenders and volatile entities, “said Richard Cordray, executive director of the Association of Consumer Bankers.
Dennis Shaul, CEO of the American Financial Services Association of America, said: “Millions of American consumers use small dollar loans to manage budget deficits or unforeseen expenses. The misinformed CFPB rule will only serve to cut off their access to vital loans when they need the most. ”
The CFPB, which proposed new restrictions in 2016 after four years of training, found that 62% of all salary loans go to consumers who repeatedly increase their payments and ultimately have to pay more than what they initially borrowed. Half of the borrowers who received similar loans with high interest rates on the Internet suffered an average of $ 185 for bank penalties for overdrafts and for insufficient fund fees, another CFPB analysis.
And more than 80% of auto head credits – in which consumers mortgage their vehicles as collateral – roll over or prolong the day when they are due, because borrowers can not afford to pay them in full, an agency was found.
Payday loans are generally up to $ 500 and must be fully paid off due to the next borrower’s salary. They bear annual interest rates of 300% or more.
“Faced with impossible payments, consumers who do not have to pay must choose between defaulting, re-borrowing or missing other financial obligations, such as rental costs or basic living expenses,” Cordrey said.
Many borrowers repeatedly turn over or refinance loans, each time bringing expensive new fees. More than four out of five loans on payday have been re-borrowed for a month, and almost every fourth has been re-borrowed nine times or more, says CFPB. The agency calls such episodes “debt trap”.
According to the new rule:
• Lenders must determine whether the borrower will be able to repay the loan within two weeks or months, including fees and financial charges, and still meet basic living expenses and other financial obligations. For long-term loans with balloon payments, borrowers should be able to pay expenses in a month with the largest total amount due. In addition, the number of loans that can be made in quick succession is limited to three.
• Consumers can get a short-term loan of up to $ 500 without passing this test, if the loan allows you to receive more paid fees. However, this option can not be offered to consumers who have repeatedly incurred payday or other short-term loans.
• After two unsuccessful attempts to access the borrower’s back account, the creditor can not debit the account again if the borrower does not allow it. This gives consumers the opportunity to challenge unauthorized or erroneous attempts to debit and cover unforeseen payments, the CFPB said.
Restrictions are excluded due to less risky short-term loans, usually created by community banks or credit unions to existing customers, and certain loans permitted by the National Administration of Credit Unions.
Will clients be able to help them?