One common option for people in financial distress is to get a payday loan to pay their bills. Payday loans generally refer to short-term cash loans that get you money when you need it fast.
In 2018, the Consumer Finance Protection Bureau (CFPB) announced major changes to the current payday loan rules. Learn all about the changes made by CFPB to payday laws and how they affect consumers below.
Payday Laws: 5 New Payday Loan Rules That You Need to Know
Avoid predatory payday loan lenders by knowing what rules they must follow. Here are the 5 major changes the CFPB announced to payday laws.
1. Prevention of Penalty Fees
Payday lenders often require borrowers to provide their bank account information so the lender may withdraw their payments automatically. If the borrower does not have enough funds in the account, the unsuccessful withdrawal triggers huge fees.
According to the Pew Research Center, U.S. citizens who use payday loans end up spending around $520 to borrow only $375. This extra money comes from these added fees and high-interest rates.
The new payday loan laws require lenders to give at least three days written notice with details about how and when they will withdraw the money. They must also get the borrower to re-authorize the payment method after two failed withdrawal attempts.
2. Limiting the Number of Repeat Loans
People struggling financially are not always able to pay off the loan within the time allotted. The CFPB states that over 80% of payday loan borrowers need to borrow again within 30 days.
This traps the borrower into a cycle of debt that’s almost impossible to escape. The new payday laws make it illegal for lenders to issue a similar loan to the same borrower within one month of paying off their previous short-term cash debt.
The borrower may ask for up to two extensions on paying back the loan, but only if they repay at least 1/3 of the loan when they extend it.
3. Check Borrowers Financial Situation
Payday loan lenders must now also check the borrower’s financial situation to verify that they can pay back the loan in the set timeframe.
They will review the borrower’s current income, financial obligations, and living expenses. This often means pulling the borrower’s credit report unless the interest rate falls below 36%.
4. Different Rules Apply to Loans Under $500
For people borrowing less than $500 at a time, lenders will not need to perform this financial vetting.
The new rules require them to pay back at least 1/3 of their current cash loan before they may take out another.
5. Introduction of Payday Alternative Loans
The CFPB also announced the introduction of new longer-term payday alternative loans.
The first of these two new loan options come with a 28% capped interested rate and a maximum of $20 in application feeds.
The second allows borrowers to repay in less than two years and in equal payments so they do not pay more than 36% of the original loan.
Request Payday Loans from a Reputable Company You Can Trust
No one wants to end up in a situation where they need to borrow money to stay afloat, but it happens. The CFPB created these new payday laws to better protect consumers from predatory payday lenders.
If you need to apply for a payday or an online loan without credit check, look no further than Bonsai Finance. The knowledgeable financial experts at Bonsai Financial can help you find a personal loan no matter your current financial situation. Contact them today to get the money you need tomorrow!