The dispute between the Consumer Financial Protection Bureau and payday lenders is kind of like the old Tom & Jerry cartoons. Tom, the angry cat, sets a trap to catch Jerry, the elusive, clever mouse. Jerry finds a way around the trap. Tom improvises and thinks of a new scheme. Jerry adjusts and squeezes his way out of it. Just like the cartoon series, the CFPB-lending industry squabble is a vicious circle between the two and there is no end in sight.
Created after the financial crisis of 2008, the CFPB has had the payday lending industry in its crosshairs for some time, particularly in the last year. According to a Feb. 9 New York Times article, the CFPB is expected to release its first draft of federal regulations in an attempt to track the payday lender industry and rein in the high interest rates characteristic with such loans.
CFPB Releases Payday Lender Findings
The CFPB studied 15 million cases of payday lenders and came away with several key findings. Firstly, that 70 percent of borrowers used their loans for basic needs. Among them, domestic bills such as heat and electricity, water, rent and auto payments. Surprisingly, only 16 percent of those surveyed used their loans for actual emergencies. Perhaps the most shocking was that the average income of those surveyed was only $22,400 per year. It is not difficult to see how consumers can quickly slip under water.
What Might the CFPB Propose?
The aim of the CFPB regulations is to meet the consumer and payday lender halfway. It remains unclear how it will accomplish such a feat, as there is resistance on both sides. Millions of consumers rely on payday lenders, but more than 12 million of those surveyed rolled their loans over after two weeks.
According to the New York Times article, the proposed federal regulations are calling for payday lenders to first determine whether an applicant can actually repay the loan within a reasonable period. Lenders will need to solicit information such as a consumer’s lending history, credit score and annual salary.
Instabill’s Stand on Loan Services Merchant Accounts
Because millions of consumers worldwide rely on the loan services industry, Instabill provides credit card processing for online lenders. Though the very subject has raised hot debate over the last year, Instabill still believes in offering legal and legitimate businesses to right to process credit card transactions. To speak with a live merchant account specialist about loan services merchant accounts, select the live chat button below or call us at 1-800-318-2713.