Know The Effects Of The Laws On Predatory Money Lending On Consumers

It is believed by many, even a few experts and several of the money lenders that the new laws against the predatory lenders may hurt people who need a loan the most. However, it is believed that most people will follow their common sense while taking out a loan but there are lots of ways in which money lenders will find their way out to earn the maximum profit by lending money to the borrowers.

This is because the lenders will almost always consider the ability of the borrower to repay and at the same time will restrict their accessibility to a number of back to back loans that may be unaffordable.

These rules however, took several years in the making primarily due to the strong opposition by several money lenders. There are distinct reasons for such opposing which may seem valid to some extent.

• They argued that people most rely on the payday loans during any emergency situations due to limited options available or their inability to attain the eligibility to obtain any other type of traditional loans.
• On the contrary, a consumer can easily take out a payday loan as this requires minimal eligibility and that too without going through any credit check or having to put up collateral for the loan.

The lenders further argued that this new rule will create a ‘credit desert’ for those Americans who find it very difficult and even impossible to access to traditional banking or even to other non-bank lenders. They feared that this new rule will result in hundreds of such lenders forced to shut their business.

Payday debt traps

The government on the other hand puts up their argument to it. They say that when the lenders still find a way to make loans up to $500 without considering the ability of the borrower to repay, it is however required that the loan is structured in such a way that the borrower gets a longer repayment timeframe and hence the new rule.

• The government says that the new rule will allow the local banks as well as different other credit unions to continue offering small personal loans as you may see several online money lenders doing so when you visit sites like https://www.libertylending.com/ and its likes.
• However, the government says that the primary intent to craft and enforce the new rule is to put a stop to the payday debt trap that has plagued different communities all over the country over the decades. The CFPB director Richard Cordray said in a statement that it is found too often that such borrowers in look for quick cash in an emergency more often than not end up taking out and trapped in loans that they cannot afford.
• Moreover, the fact that the consumer watchdogs do not have the power to put caps on the interest rates, it is now left to the states to ensure that the borrowers are not deprived or subject to any unfair practices.

It is for this reason that the states have now focused on restricting the access of the borrowers to these short term loans by implementing different safeguards.

The bad rap

Predatory money lending has had a bad rap for a long time, dating back to the days of Aristotle and the Bible.

• Both of them were against usury, the practice of charging of interest on money lent out.
• Ralph Waldo Emerson once said that anyone who owes money is a slave.
• In these modern days, the belief is still there but bit subsided when President Obama opined and campaigned that predatory lending is a vague term that signifies that there are severe consequences when you default.
• In general, many people feel that such type of money lending or borrowing are both unhealthy and immoral.

However, all these beliefs certainly have a specific appeal especially if you consider the world to be a zero-sum game wherein every trade made has a specific winner and a loser.

That means, if it is true then one party will gain at the expense of another person at a loos and that is downright immoral by the standards of The Bible.

In this modern times however, the lenders exploit the borrowers and unjustly charges interests on the amount loaned. This is in accordance to the proven human psychology that left to their own devices when people are set free, they will generally try their best to pursue and fulfill their self-interest.

The good side

Strangely and surprisingly, there is a good side of predatory lending as well which is what the new rules want to cash on.

• Money lending occurs in an open and free market where you can enter and leave any time.
• Another good this is that by doing so both the consumers and the creditors are gaining something or else this specific market would have shut down long time back.

However, when you want to take out such a loan you must consider its features and give it a second thought before taking it.

• Typically, the interest rates on such loans sit pretty high at 300%
• You may also expect to pay a median fee as high as $15 for every $100 you borrow and
• According to the CFPB four out of five such loans taken out are renewed or rolled over within a couple of weeks.

Here the Final rule comes into play which also governs other loans and specific products such as car title loans, loans for longer terms and with balloon payments as well as deposit advance products.

With the new rules that are expected to come into effect in the middle of 2019, the CFPB will also start overseeing the payday loan industry that is valued at more than $38.5 billion. The agency has specially designed the rule the set new restrictions to protect the consumers.

However, the rule that was framed last year garnered mixed response but the good sign is that it received more than one million comments raising high hopes for the consumers.