Anyone who has ever had to use a payday advance knows that these short-term
loans could have long-term implications. With sky-high interest rates
(around 390% on average), one loan could spell years of repayments –
essentially leaving a borrower already living paycheck-to-paycheck in
an endless cycle of debt that is incredibly difficult to escape. In fact,
the average payday loan borrower spends nearly six months of each year
in debt, and pays an average of $520 is fees to repeatedly borrow only $375.
Knowing this, the Consumer Financial Protection Bureau has proposed new
rules that would require lenders to verify a borrower’s ability
to pay back a loan
before an approval, and would also restrict some predatory lending and fee practices.
Here are the changes the Consumer Financial Protection Bureau is proposing:
“Full Payment Test.” Lenders will be required to check to ensure that a potential borrower can
afford to repay their debt and still have enough leftover to cover basic
needs like rent, utilities, and other living expenses. This will cut down
on the number of people who become saddled with loans that they cannot pay back.
Regulation of penalty fees. Several payday lenders have access to their customer’s checking accounts
s that that can automatically collect payment on the borrower’s
payday. If the borrower’s account lacks the necessary funds, however,
it could end up costing the borrower in overdraft fees. This new rule
would require that lenders provide written notice at least three days
before attempting to debit an account. The notice must show how much money
will be taken from the account and when the transaction will occur.
End the “debt trap” cycle. The CFPB’s goal is to end “debt traps” by making it more
difficult for lenders to refinance or re-issue a loan. More than 80 percent
of payday loans are re-borrowed within 30 days.
While these rules could go a long way in overhauling the payday loan industry,
some are saying that these changes are not enough. For example, if there
were federal standards in place that clearly outlines what a safe and
affordable loan should be, banks and other lenders could also get in on
the short-term lending market.
If you are struggling to pay off payday loan debts, credit card debt, or
any other type of consumer debt, the time is now to consult with a Los
Angeles bankruptcy attorney at Wadhwani & Shanfeld. After reviewing
your financial situation, we can recommend the solution that works best
for you. Ignoring the problem won’t make your debt disappear, so
take action today. There is hope!
To request a
free initial consultation with our firm, please call us at (800) 996-9932.