At present, seems there is no person today who doubts the necessity for the serious overview of the payday lending industry. Seems the quite right time has already come and besides Consumer Financial Protection Bureau (CFPB) has issued the regulations to introduce certain restrictions to the industry.
In the recent several decades, the loan providers have increased due to the active implementation of aggressive marketing. They target financially unprotected families, military men and the neighborhoods of African-Americans and Latinos.
It was in 1990s when the number of payday lending institutions grew more than a hundred times from 200 to more than 22,000 across the country.
Nowadays, there are more such lenders in USA than Starbucks cafes and McDonald’s. These companies combined issue about $27 billion in annual loans.
Consumers’ Satisfaction isn’t the Priority
Unfortunately, in contrast to mortgage lenders, auto loan lenders or even student loans providers, the success of this very industry has little to do with consumer satisfaction. More often such loans issued for people facing emergency or just needing solution for a short-term cash flow problem lead the borrowers into a vicious cycle of debt, which is difficult to break later on.
Sadly, the ¾ of all the loans issued for personal use are spent to pay the alike obligations taken before. About $3.5 billion is paid annually in fees. It’s curious that the lenders in Washington actively oppose the 8 loan per year limit, which is tried to be introduced, while marketing their loans as one-time measure to cover the temporary monetary difficulties.
- Intercept is being sued for providing illegal payday loans.
- New rule can stop existence of loans till payday.
Business Models to Involve Consumers in a Cycle of Repeated Loans
The real tragedy for the consumers is not in figures only, but in the real people being ruined. Though presented by the providers as extremely simple and short solution for a temporary financial crunch, they involve the borrowers into a cycle of repeated loans.
Not long ago the investigation was conducted by CFPB against Ace Cash Express, one of the largest companies in the industry. It was found out that the company had a special business model to involve consumer in the debt impossible to be covered by the latter.
The re-borrowing was almost imposed on the clients along with new fees, not speaking of the sky-high interest rates, which at times reach 400%. The total amount of the loan, interests and fees the borrower should cover on the next very payday, which is often impossible for many of families.
The payday loan providers do not show much interest in the fact whether the borrower can repay the taken amount or not as they provide money in exchange for the signed check or bank account access to make sure they can get their money back in time, even if it means that the borrower can miss some other payments due or threat with the overdraft.
Right Time to End the Payday Debt Trap
Fortunately, all over America people agree that the practice is unacceptable and more and more states introduce halts to the debt trap, North Carolina, New York and 19 other states (including D.C.) are among them. They have either put caps on interest rates or taken other measures to limit the cycle of debt. In their turn the lenders try to avoid restrictions and start going online or re-categorizing themselves or even attempting to evade the laws.
As true Americans, we can offer something so much better to our citizens other than percent rate of 300 and more for personal installment loans online to save our consumers from the financial trap. The time has finally come to end the payday debt trap.