Recent reports from industries claim that lenders can possibly lose 70% of their business if the CFPB (Consumer Financial Protection Bureau) goes through with their plan that is to regulate payday loans.
Clarity Services, a credit agency, has discovered that the regulations will lessen the amount of regulated loans by more than 70% and the existence of monocline payday storefront businesses would cease, if these rules were to be considered.
Last week, Charles River Associates, a global consulting firm discovered that the payday loan revenues of lesser lenders would decrease by 82% under the rules, when 2013 data is applied.
In this report from Charles River Associates, it is said that the rules may “dampen demand to originate payday loans and/or increase default rates.”
CFPB analyzed the rules by frameworking and outlining them for its consideration in March. This act branched the rules into two rules- debt trap protection or debt trap prevention- lenders would be given the option to choose between these two things.
Given the debt trap prevention rules, lenders are requires to verify a consumer’s annual income, as well as borrowing history and debt when it comes time to determine his/her ability to repay loans and still be able to manage their everyday life expenses and loan payments.
In its framework, CFPB said its rules could affect lenders specializing in payday loans “particularly severely.”
“The proposals under consideration could, therefore, lead to substantial consolidation in the short-term payday and vehicle title lending market,” the framework said. “This would be especially likely in areas with a preponderance of monoline lenders and in areas where diversification into other loan products is difficult, such as in states where other forms of high-cost lending are not permitted under state law.”
With the debt trap protection rules, lenders are not required to analyze the consumer’s abilities, however, all loans have a limitation set to $500 with an additional finance charge in which lenders would not be able to hold a vehicle title as means of collateral on a loan.
CFPB claims in its framework that its rules have the possibility of affection lenders who specialize in payday loans, those who specialize in it “particularly severely.”
The framework says, “The proposals under consideration could, therefore, lead to substantial consolidation in the short-term payday and vehicle title lending market. This would be especially likely in areas with a preponderance of monoline lenders and in areas where diversification into other loan products is difficult, such as in states where other forms of high-cost lending are not permitted under state law.”
