Payday loans are small short-term loans that can be obtained quickly and easily online with no credit check. A payday advance is usually a short term unsecured loan, sometimes characterized with high interest rates for the short term. Some payday advance companies do require a post-dated check, but this is typically only required if the borrower is going to be borrowing more money than can be paid back in one payment. Payday loans are not good for long term financial commitments.
The U.S. Congress, after the real estate market collapse, passed the Protect Credit Act, which among other things, prohibits lending to those who have not been actively employed for one year. This means anyone who is between six months active-duty service and six years’ period of residence must first obtain a CFP to demonstrate a stable income and to show they can responsibly manage a loan. Payday loans are specifically for active-duty service members of the military. Military personnel are allowed to borrow up to ten thousand dollars during a twelve month period. Payday loan companies must report this income and any associated expenses to the Department of Defense, who will then be able to provide eligibility for military payday loans.
Recently, the CFPB, or Consumer Financial Protection Bureau, has taken aim at payday loans. The CFPB is currently reviewing the guidelines and practices of payday advance companies to determine whether or not they are offering unfair lending practices. One proposal under review is whether or not borrowers are accurately reporting all costs associated with their payday loans and if so, to what degree. Borrowers currently are permitted to write the cost of a loan on the check that the borrower provides when borrowing for the purpose of purchasing goods or paying off debts.
Other proposals in the review would require payday loans companies to inform borrowers of all applicable fees and charges up front. This would allow borrowers to make an informed decision about whether or not the loan meets their needs. Many borrowers fail to repay payday loans because of the fee structure and are unaware of all charges that may apply. The CFPB is also considering other measures that could increase penalties for those who repeatedly fail to repay their loan.
The CFPB is currently examining whether payday loans are subject to the same types of lending discrimination that is being targeted by various credit unions. In recent years, many credit unions have passed legislation that prevents lenders from making any advance money loans to borrowers who do not meet eligibility criteria. In some instances, the CFPB has even imposed fees and penalties on lenders for failing to make these distinctions. The inclusion of payday loans in the review process may pave the way for additional legislation that directly affects the industry and lenders alike.
In addition to additional fees, the CFPB has suggested that payday lenders should be required to provide training to their clients on debt management techniques and options. Many current and former borrowers have reported that they received poor advice from their loan officers and were often subjected to deceptive or misleading practices. To date, the CFPB has not approved any additional training requirements for payday loans. Instead, it is reviewing whether existing regulations on payday loans are being complied with. If new rules are approved, it is likely that future borrowers will receive more favorable treatment when borrowing from payday lenders.