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Shaul said he expects the industry to look to other products to fill the gap, such as installment loans, which allow for the principal to be paid back over a longer period.He added that some assessment of a customer’s ability to pay will also be important.
Since loans are made based on the lender’s ability to collect, not the borrower’s ability to repay while meeting other financial obligations, payday loans create a debt trap. CFPB found that more than half of all online payday instalment loan sequences default.
CFPB found that 80 percent of payday borrowers tracked over ten months rolled over or reborrowed loans within 30 days. Payday loans are made by payday loan stores, or at stores that sell other financial services, such as check cashing, title loans, rent-to-own and pawn, depending on state licensing requirements. CFPB found 15,766 payday loan stores operating in 2015.
However, he said he disagrees with the CFPB’s approach, opting for a more individualized evaluation of each borrower’s financial circumstances.
Others in the industry feel forcing payday lenders to procure underwriting technology is unfairly singling out the industry, particularly smaller, brick-and-mortar businesses.
Payday lenders, who will soon need to assess borrowers’ ability to pay, are looking to different ways to reach customers seeking short-term loans.
Their future may depend on the use of technology to evaluate borrowers, but it’s a shift not all companies will be able to make.
Jamie Fulmer, svp of public affairs at Advance America, one of the largest payday lenders in the U.
S., said smaller companies may find it more difficult to adapt.
For more information, click on Legal Status of Payday Loans by State.
Payday loans are not permitted for active-duty service members and their dependents.