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Studies Reveal Real World Benefits of Payday Loans

It is no secret that there are lots of folks and organizations out there that like to drag the payday lending industry through the mud whenever they get the chance. Things have become so bad for some alternative financial providers that some lenders have been forced to close up shop because of some heavy pressure from government initiatives, like Operation Choke Point. It appears, however, that there is some very real proof that there are indeed benefits to payday loans that some people don’t want other folks to know about. Two new studies on the payday lending industry cast a new, more positive light on the industry as a whole. A Law Professor from Columbia, Ronald Mann, came to some very interesting conclusions in his most recent study. Here’s just a little bit of what Professor Mann’s study revealed about the short term lending industry: The study proved that credit ratings changes for people who default on payday loans are not all that much different from the credit score changes that responsible borrowers have. The decline in credit score in the year that a borrower defaults greatly exaggerates the final effect of the actual loan default. This is because the credit scores for folks who default on their loans typically experience very large increases for more than 24 months after the year that they defaulted on their loans. In other words, the payday loan default is not to blame as the ultimate cause for certain borrowers’ financial problems. This is usually because the borrowers who do not pay their payday loans back usually have dealt with other financial problems in the past that caused their credit scores to decrease. This all goes on to suggest that defaulting on a payday loan plays a very small part in the complete timeline of distress that default borrowers experience. It is hard to bring all of this into line with the improvements that the improvements to borrowers’ financial situations come from the ‘ability to repay’ requirements that are factored into every payday loan that is provided by short term lending companies. In a… Read More

The CFPB Issues Proposed Rules for Prepaid Financial Products

Back in mid-November the CFPB (Consumer Financial Protection Bureau) issued their proposed rules to offer certain protections under the existing Electronic Funds Transfer Act’s implementing of Regulation E and the Truth in Lending Act’s implementing Regulation Z to certain prepaid financial products. The CFPB also released the results of a study they conducted on the prepaid financial service industry. The rule that is being proposed by the CFPB defines prepaid accounts as a code, card or other device which is given for individual, households or family purposes and which also is issued on a prepaid basis to customers in specified amounts or not issued on a prepaid basis but with the potential of being loaded with funds at a later date; and that is redeemable upon presentation at merchant locations for goods or services, able to be used at ATMs or for person-to-person financial transfers. Prepaid accounts would also include payroll card accounts (given by some employers in lieu of actual pay checks or direct deposits to checking accounts) and government benefit accounts. However, prepaid accounts would not include store gift cards, gift certificates, promotional or loyalty card benefits or general use prepaid cards that are clearly labeled or marketed as gift certificates or gift cards. Regulation E Extended Under this proposed rule, Regulation E’s current definition of an account would include prepaid accounts and these protections would be extended to consumers that receive such prepaid financial products: Periodic account statements or the ability to access account information for free online. Limited liability for any unauthorized charges if the consumer promptly notifies their financial institution of any unauthorized charges that have taken place. Timely investigations and resolutions with regard to any errors that are reported. The Know Before You Owe Clause The new rule also includes the “Know Before You Owe” disclosures for prepaid accounts. Financial institutions that offer these types of financial products to consumers would be required to provide short and long form disclosures to consumers before a prepaid account of any type is acquired. And for some types of prepaid products that are sold in retail stores,… Read More