Payday lenders have warned that the new regulations placed on them may drive people into the arms of loan sharks and other unregulated lenders. The states where instant cash loans are legal have implemented a number of strict policies over the last few years which are threatening to bleed the industry dry. According to payday loan companies, these measures are not protecting the consumer at all. In fact, it is placing them in great danger as people desperate for cash will now turn to illegal lenders who are notorious for their exorbitant interest rates.
Owners of payday stores are upset that the new regulations seem to allow online cash loan companies to thrive while physical stores find it hard to survive. Tony Scales of Express Check Advance suggests that regulators don’t take into account the emergency needs of people when they introduce these harsh new rules. Jamie Fulmer of Advance America agrees. He said that the new regulation will merely play into the hands of underground lenders who really take advantage of people. The Consumer Financial Protection Bureau (CFPB) is determined to regulate the industry with its head, Richard Cordray, stating that payday loan companies have escaped regulation for too long.
The Need for Emergency Cash Loans
The instant cash loan industry really boomed in the 1990s and first decade of the new century as they loaned money to consumers with poor credit scores and others who were unable to get a loan from a bank. Short-term loan companies point out that the actual interest paid is not that high with an average of 17% paid on the average loan of $345. While this may seem high, the emergency factor needs to be taken into account. These customers have no other alternatives. Consumer groups say that cash loan companies like this take advantage of low income families who can’t afford to repay, end up paying rollover charges and remain caught in a web of debt. The peak year of the industry was 2007 when it made almost $7 billion in profit.
Rise of Online Cash Loans
Although some states have made payday loans illegal and this has caused the fall of many physical stores, online lending is going from strength to strength. This form of lending has doubled in the last five years but the concern is that illegal online loan companies are operating amongst those who follow the rules. The Consumer Federation of America claim that online cash loan companies charge 50% more interest than storefront loan companies.
The CFPB’s main concern is to closely monitor non-banking financial companies that provide financial products. The CFPB aim to learn more about payday lenders and ensure that they are operating within the law. However, it is feared that overzealousness on the part of the CFPB could cause consumers to look to illegal lenders for financial assistance. There is no doubt that payday lending needs to be regulated but creating new rules that will cripple this type of company will be terrible news for the consumer in the long run. Banks consistently turn their backs on the needy. We need a regulated alternative that can offer instant cash when necessary or else loan sharks will win.