The Consumer Protection Financial Bureau (CFPB) has recently proposed the first-ever federal laws that would regulate fee schedules and interest rates for payday lenders. However, not all of the regulations appear to be helpful to consumers. Payday and auto title loan lenders are reacting to some of the newer regulations by shifting repayment plans that could allow them to charge higher fees in order to use the service. The Pew Charitable Trust, a non-profit organization that focuses on the study of public policy, analyzed data from payday lenders and determined how these companies are able to shirk federal regulations and continue charging consumers big bucks on small loans.
If you are stuck in the payday lending trap, you need an experienced Ohio debt lawyer on your side. Contact Jeremiah Heck with Luftman, Heck & Associates today at (888) 726-3181 to find out how he can help you.
How Payday Lenders Get Around Regulations
Traditionally, as the name suggests, a payday lender would make a loan to a consumer and that consumer would pay it back in one lump sum when their next paycheck arrived. Consumers have found that the fees and interest associated with their short-term loan are so magnanimous that they have to take out another loan just to pay the first one. Unfortunately for the consumer, this is a repayment cycle that’s difficult to end. The lenders came up with a solution to convert repayment options to installments, rather than a single lump sum. While a monthly payment would surely seem smaller, the lenders can actually charge a much higher interest rate, even as much as 400 percent annually, causing consumers to pay almost as much in fees as they do for the actual loan amount.
Under the CFPB’s new regulations, payday lenders would be able to charge any amount they want in loan fees and interest rates as long as they were able to make a, rather vague, “reasonable determination” that the consumer could pay back the loan. Consumers must have an open checking account in order to acquire a loan. Additionally, the consumer must provide a payday company with access to their checking account, granting them permission to draw money directly from the account. What’s more, auto title lenders now have unfettered access to consumer auto loans and will be able to repossess the cars of people behind on their payments. Pew considers these practices to be “predatory,” urging the CFPB to get a better grip on regulating these companies who are allowed to have so much access to consumers’ funds.
The 5 Percent Payment Option
The new regulations might signal the end of the 5 percent payment option which limits consumer repayment amounts to an affordable 5 percent of their monthly paychecks and gives them a reasonable amount of time to repay the loans. This option also allows banks to compete with payday lenders by offering small loans costing significantly less than their competitors charge. However, if the CFPB eliminates this option, it would also be doing away with a regulation that could set standards in place to keep a cap on the fees consumers have to pay. To put this more into perspective, Pew had this example to provide:
“Under the 5 percent payment option, a $400 three-month bank loan would cost $50 to $60 in total fees. But under the CFPB’s draft rule, payday lenders will remain in control of this market and charge fees of $360 or more for the same $400 in credit.”
Contact an Ohio Debt Lawyer Today
If you’ve turned to a payday lender for a small loan, only to find that you’re struggling under the weight of the lender’s hefty fees, you may want to contact an attorney. The debt attorneys at Luftman, Heck & Associates will fight for your right to more affordable repayment options from payday lenders so you can keep more of your hard-earned money. Call today for a free consultation at (888) 726-3181 or emails us at firstname.lastname@example.org.