Support NeoGAF

[Tripon]

Consumer Financial Protection Bureau

This week, America’s consumer watchdog put into place a new rule that will effectively kill the businesses of many payday lenders, companies that issue short-term, high-interest loans.

The rule from the Consumer Financial Protection Bureau requires payday lenders to determine whether they are likely to be paid back — before a loan is issued. CFPB research found that the 16,000 payday loan stores make their money on people who cannot pay back the loan at the end of the period — typically two weeks.

“These protections bring needed reform to a market where far too often lenders have succeeded by setting up borrowers to fail,” CFPB director Richard Cordray said on a call to reporters. “The principle that lenders must actually evaluate the borrower’s chances of success before making a loan is just plain common sense.”

Given that payday lenders make the bulk of their money due from loans that are not paid quickly, this will likely put many lenders out of business, leaving a gap in service for people looking for small short-term loans. That is, until the new players like credit unions and fintech apps fill the vacuum.

On the call to reporters, Cordray said that the bureau has “no intention of disrupting lending by community banks and credit unions. They have found effective ways to make small-dollar loans that consumers are able to repay without high rates of failure.” The credit union industry welcomed the narrowing of the rule to exclude their activities, and the praise.

“The rule will allow those who already offer payday alternative loan programs to double down,” a spokesperson for the National Association for Federally-insured Credit Unions told Yahoo Finance. “For credit unions not offering programs, the rule gives them an avenue to develop a program and take best practices from those who are already doing it well.”

Besides credit unions and banks, other services are emerging such as Activehours, a free service that allows you to withdraw money the day you earn it instead of waiting until payday. Using technology made possible by online banking, the service can integrate with your bank activity to see that you’re gainfully employed, making a quick judgement to confirm that you will, in fact, make the money by next paycheck.

https://finance.yahoo.com/news/amer...industry-heres-will-take-place-130339534.html

 

[redlegs87]

Does this include things like title loans and other such short term scams? If I remember many places have shifted away from payday loans to other types to get around certain loopholes.