Early in 2015, the Consumer Financial Protection Bureau began putting together policies meant to regulate payday lenders throughout the United States. Currently, payday lenders are limited only by state rules regarding maximum interest rates for short term loans and are not federally regulated. Although the CFPB cannot lower the cap on interest rates, that can change the rules that qualify clients to become borrowers. While government intervention is meant to protect you as a borrower, there are some things you should be prepared for if you want to get a payday loan in the future.
Show Your Proof of Income and Current Debt
Most of the rules the CFPB is considering focus on making sure that only borrowers who have the means to repay loans in a timely manner are able to take out a payday loan. This means loans may be capped at 5-10% of your monthly income and lenders may have to take into consideration your current debts. Currently, most lenders only require a predated check or proof of income to issue a loan.
These rules may mean a bit of extra paper work for you and possibly a longer processing time. It can also make it more difficult for college students waiting for their student loan disbursement to get a loan to help with expenses at the beginning of a semester.
To make sure you get the money you need on time, you may need to apply for a loan sooner. Additionally, keep physical and digital copies of any of your incomes and debts easily accessible so you can apply for a payday loan online or in person. Knowing your total income will also help you know ahead of time how much you will be approved for, if a percentage cap is instated. This amount is helpful to keep in mind when you are faced with emergencies, as it may be less than the current maximum, which is usually around $500.
Be Prepared to Complete Brief Financial Counseling
Another rule that might be implemented is the need for brief financial counseling before a loan is released, similar to the financial counseling that college students must complete before their loans are released. This has the potential to take many forms. For instance, you may be required to sign a waiver stating the rollover rates and penalties for late payment have been clearly explained to you. As a more extreme option, you may be required to read a brief lesson about financial planning and complete a quiz about what you have read.
Financial planning can help many people who are having financial difficulties. Payday loans are meant to cover emergency expenses, not to regularly supplement your monthly income. If you are using these loans to supplement your monthly income, you may need to find a way to reduce the amount you are spending or increase your income. It is unlikely payday loans will require in-depth financial education, so it is important that you seek other resources, such as online financial literacy courses, or courses offered through organizations in your area. Completing these courses can help you get your finances under control and can prepare you in case a financial literacy course is required as part of a payday loan requirement.
Whether these changes to payday loans will happen this year is still not clear. However, if you think you might need a payday loan or have used one in the past, it may be helpful for you to be aware of these changes and be prepare for any extra work that may be required to apply for a payday loan in the near future.
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