It's about that time, yet again. The Consumer Financial Protection Bureau (CFPB) are once again focusing on Payday lenders in an attempt to further limit their interactions with borrowers. What have they changed with their newest policy changes? Read on and find out how these new payday rules are changing the payday field (yet again):
3 New Payday Rules To Help Consumers Save
1- Collection Limits:
The first limit put in place limits how Payday lenders can request their payments. Because overdrawing a bank account can often come with incredible costs, Payday lenders before now could request payment directly from a borrowers' checking account multiple times per day, accruing huge overdraft penalties. This new set of rules sets the limit to two attempts to withdraw without further permission from the borrower. This makes it harder for Payday lenders to receive payment and eases the burden on the borrower.
2- Succession Limits:
The second limit put in place limits how many times borrowers can refinance or renew their loans. Previously, Payday borrowers could use their old loan to open a new loan, which would often lead to a debt cycle that could easily spiral out of control. Renewing payday loans is no longer an endless cycle - according to CNN, "the rules would prevent lenders from issuing a similar loan to a borrower seeking more money or looking to roll over a loan within 30 days of paying off a previous short-term debt." Payday borrowers are now safer from going in for one loan and winding up with a string of them.
3- The Full-Payment Test:
Finally, to put these limits into place, Payday lenders are now required to test a borrower's income to ensure they can still afford basic living expenses and other financial obligations on top of their payday payments. Dubbed the "Full-Payment Test," this can limit or outright bar some borrowers from taking out loans. However, this is not necessary for any loan less than $500, so long as the borrower hasn't borrowed within the last 90 days. This means lenders need to jump through fewer hoops for new borrowers.
So what does this mean for borrowers?
Most borrowers will end up taking out smaller loans than they would before. Many businesses will end up capping new loans at $499 to avoid the full-payment test. At the same time, their window to pay it back will be larger: With only two chances to retrieve money before requiring further authorization, borrowers may gain some extra time to pay back.
So what does this mean for lenders?
For lenders, new clients are the key. The full-payment test can be avoided if a new borrower needs less than $500. This means you can start customers on small loans with relatively little hassle. It's pretty clear that these new rules are not designed to prevent new Payday borrowers, but simply to protect people who have used it in any way in their past, and may struggle to get out of their debt cycle.