There are a set of rules that have been put in place by the Consumer Financial Protection Bureau. Thes rules offer protections for those who take out loans from payday loan vendors and other bankers. There are many who take advantage of their clients through these loans. They do it in the form of high interest and other such things. This can be challenging for many who are struggling to pay their own way and bills.
It is a loan that is for about $500 or less. It can sometimes be more, but usually is not. The loan is due on the client's next payday. This is an option for those who are strapped for cash or cannot wait until the next payday to get their money in.
Clients can make their payments in a few ways. The first way is through their bank. This is usually the way most do it. In fact, some borrowers will not even do business with a client unless they are given their bank account. Think of this as "collateral".
A client can also post-date a check. Now there is a fee attached to this. There is a fee attached to one of the loans no matter. How much the fee is will depend on the amount of the loan. The bigger the loan, the more you will be charged in fees.
Compared to any other type of loan, the fees are going to be more. Most will range from between $15-30 per $100 taken out. Say a client takes out a two-week loan. Say the loan is $15 for every $100 taken out. Say the amount of the loan is for $400. In total, the amount of the loan will be about $430. This is a 400% increase in APR. Compared to credit cards, some of them are much worse.
Here is the deal. Over 80% of the payday loan clients cannot pay back their debt right away. This means they have to take out another loan on top of it. This tends to add up. These clients tend to fall into the "debt trap".
This client will continue to take out more loans. He will then continue to add up his debt. The more loans he has, the more fees he has. The higher the loans, the higher the fees.
Say someone takes out $100 with a $30 charge. Say he rolls it over 3-4 times. He could end up paying $90-120 at the end of the day. This is on a $100 loan. It will cost him double or triple what he owed in the first place. Here is a scary statistic. 70% of all clients take out at least two loans back-to-back. One person out of five ends up taking out 10 loans at a time, maybe more.
Think of like this. You hail a taxi. You expect to be taking a journey from point A to point B. You end up taking a drive all across the city. This ride ends up costing you 6 to 10 times as much as it was supposed to. When this happens you fall short in other areas of your life. You cannot pay your bills or your medical expenses.
The first thing is that a lender is required to access the client's financial situation. This way he can determine whether or not the client can pay on time, while still meeting his other obligations.
The second thing is it will limit the number of loans a person can take out. Many clients will not be able to take out loan after loan like they used to.
The third thing is the lender needs to notify the client when he or she is trying to access their account. Say the lender decides to access it twice and is denied. He is then banned from accessing the account unless the client dictates otherwise. This cuts down on scam lenders trying to steal money from someone's account.
One thing to mention about the last one involves the fees. The fees will add up over time when the lender is not successful in trying to access the account.
These new rules do help the borrower, but there is still a great deal of risk attached. Those who do take out one need to consider their options and be responsible. You may want to consider doing something else. There are things like a short-term loan from a bank. You can get a cash advance on your credit card. Yes, they will carry fees too. The fees will not be as much as the payday loan deal.
There will be exceptions for those who are military personnel. You need to contact the appropriate people and show them your credentials. Create a small budget and stick with it. Do what you can. You are only human after all. Those who feel they are becoming too overwhelmed should talk to a counselor about their money issues. There are many of them who can help you figure something out.