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Payday lending operations have attracted the attention of the Consumer Financial Protection Bureau, the agency created in the aftermath of the 2008 financial meltdown.
New regulations would place interest rate limitations on installment payday loans, protecting borrowers from becoming trapped by debt. Installment payday loans allow borrowers to repay over a period of several months instead of the two weeks offered by traditional payday loans. However, some installment loans have interest rates of over 400 percent, and borrowers can very quickly owe several times more than the original loan.
Payday lenders target the working poor, who have no savings and limited access to bank loans with lower interest rates. Although regulations will limit most predatory forms of payday loans, the CFPB does not want to eliminate credit options for poorer borrowers. Currently, 70 percent of payday loan borrowers use the debt to pay for basic expenses.
One of the new regulations will put requirements on payday lenders by making them assess a customer’s income to ensure they have the means to pay the loan back once payments are due. Other ideas for regulations include loan limits that do not extend beyond $500 and banning payday lenders from issuing multiple loans within a 12-month period.
Will Filing for Chapter 7 Bankruptcy Get Rid of Payday Loans?
Borrowers trapped by payday loans do have options if regulations fail. In some cases, payday loans are unsecured debt, meaning that they are not backed by collateral such as property and can be discharged by filing for Chapter 7 bankruptcy. Some payday lenders might challenge attempts to discharge the loan, so it is advisable to discuss what options are available with an experienced bankruptcy attorney.
The Sader Law Firm – Kansas City Bankruptcy Attorneys
Did You Know? The payday loan industry has grown enormous, and now has a combined worth of more than $46 billion!
