By A. Carlos. Dominican College.

Measures that have been introduced to counter payday lending in various American jurisdictions payday loans abilene tx, without the introduction of an interest rate cap are: • Renewal bans/cooling off periods • Limits on number of loans outstanding • Extended payment plans • Loan amount caps based on borrower‟s income • Regulations that narrowly target payday loans In December 2007 the Center for Responsible Lending in the U payday loans yuba city. S released a study entitled „Springing the Debt Trap: Rate caps are the only proven payday lending reform‟. In that report, the Center examined each of the above measures and found they comprehensively failed to prevent repeat borrowing. Not surprisingly, the Center found that in the four states in which they were offered, payment plans formed between 0. Evidence from Australia and overseas strongly suggests the only proven method to counter high-cost short term lending is to apply a comprehensive interest rate cap. Alternatively, phase two could result in the sunsetting of current state-based interest rate caps without the introduction of any additional Commonwealth protections. Clearly, this is a critical juncture for high-cost short term lending in Australia. Careful consideration must be made of the arguments both for and against a comprehensive interest rate cap. Arguments against a national comprehensive interest rate cap Recent developments in Queensland and the rolling policy debate in the United States illustrate that anti-cap (and pro-cap) arguments remain common across varying jurisdictions and timeframes. A ‘fundamental need’ for short term credit Proponents of this argument equate widespread use of the product and lack of access to alternate forms of credit with evidence of a need for high-cost short- term lending. Some go further to assert that fulfilment of this „need‟ is some form of public good. The demographics of borrowers and the purpose to which borrowings are applied strongly suggest that the demand for high-cost short term loans is primarily driven by insufficient income. Stating that insufficient income exists does not establish that the community needs high-cost short term loans. If the product is necessary, then it is surprising it commenced in the Australian market in 1998 and has only had a significant presence since the early 2000s. Insufficient income has existed as a social problem in Australia since well before 1998. Third, high-cost short term loans are not available in most countries, despite the fact insufficient income exists as a social problem in all countries. Taken on a global scale, high-cost short term lending is a largely Anglo Saxon phenomenon. Major developed economies such as France and Germany do not permit high-cost short term lending. This undermines any claim the product is somehow a necessary feature of the consumer credit landscape. Finally, describing high-cost short term credit as serving a fundamental need implies that it acts to solve a problem. As discussed, if the problem is insufficient income, then it is difficult to see how high-cost short term credit can genuinely provide a solution unless consumer usage is truly intermittent and occasional. Otherwise, it is more likely the product perpetuates the problem and operates to generate its own demand. Substitution argument: Illegal lending A further set of arguments raised against comprehensive interest rate caps are based on a substitution or „scare tactic‟ model which implies severe adverse consequences in the event a comprehensive interest rate cap is implemented. One such argument is that the implementation of an interest rate cap will result in a surge in illegal lending or „loan sharks‟. If a surge had occurred in any jurisdiction, it is surprising industry advocates have not presented it as evidence in support of their argument. Second, it is logically flawed to state that prohibition of a product will automatically result in a black market for that product. It is highly doubtful that all or even a significant majority of current borrowers would turn to „loan sharks‟ if high-cost short term loans were no longer available. Even if a cap were to cause an increase in illegal lending, that market would be subject to criminal law enforcement which would constrain the market and render it far smaller than the previously legitimate market. On that basis, a cap arguably represents sound policy even if it does lead to an increase in illegal lending - which is itself an unproven and highly contentious claim. Substitution argument: Cost to welfare A further substitution argument suggests implementation of an interest rate cap will result in an increasing welfare burden for government.

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These overdraft fees and credit card debt payday loans boise id, sentiments are consistent with a national perhaps explaining their appeal to payday loan users payday loans baltimore, who are eager survey from Pew’s Safe Checking in the to avoid both of these. Among to pay it back, and then I was gone online borrowers, 46 percent had this longer than I expected, so I missed a 54 payment. This signifcant difference weeks, and they went and they took was refected in Pew’s focus groups: it out of my account. These fndings—that 52 percent of payday borrowers also report overdrafting their checking accounts, and that for 27 percent of borrowers, payday loans are actually causing overdrafts—reveal that payday loans frequently fail to help borrowers avoid overdrafts. Three in 10 Pew’s frst Payday Lending in America borrowers have never been able to repay report identifed a variety of informal with income or savings, relying exclusively or noncredit options that a majority of on one or more alternative strategies. For example, 19 percent ultimately turn to the same options they of borrowers received help from family or could have used instead of payday loans as friends to pay back the loans, and almost a way to pay off the loans. Similarly, methods they have used to pay back some focus group participants said they a payday loan. Seven in 10 payday chose a payday loan instead of other borrowers have repaid loans from regular options but then turned to those same income or savings at least once. Although alternatives later to help them resolve their most borrowers have had or saved enough payday loan debt. Both storefront refund to pay off a payday loan, a fnding and online borrowers have used these that is consistent with prior research alternative methods of repayment, showing that outstanding payday debt demonstrating that this problem applies 57 decreases when tax refunds are issued. I kind of wish I did, loans to pay payday loans [and that] you know, because I ended up paying doesn’t make any sense. Previous research has also found A majority of borrowers say payday that storefront payday lenders win loans take advantage of them, and online high marks for respectful and friendly borrowers and those who describe their 59 customer service. Sixty-four percent of this latter The payday loan industry works hard to group said the loans take advantage, create a friendly and respectful atmosphere compared with 47 percent of borrowers that customers appreciate. Many describe who rated their fnancial situation as good relationships with those who work in “good. I mean, the same as you, they’re just, they’re they’re happy to see you, because you’re struggling, too. In focus groups, most who talked 60 given market, but they instead compete about the loans being helpful spoke of the on customer service, seeking to maintain relief they felt when they were able to get a long-term relationships with borrowers. In contrast, most of those who talked Payday loan advertisements promote “out- about the loans hurting concentrated on 61 standing customer service,” “fast, friendly the diffculty of paying off the debt and 62 63 64 service,” “courteousness,” “smiling,” the length of time it took to get out of a 65 and “dedication to our customers. Borrowers Mixed on These feelings also correspond to Whether Loans Help respondents’ attitudes about their own More Than Hurt fnancial situations, with those who have Borrowers are torn about whether payday more frequent trouble meeting expenses loans mostly help or mostly hurt them, more likely to say the loans hurt. They used more negative terms than positive ones, but some focused on the loan being helpful when they were in a tight spot. Interestingly, most borrowers did not disagree with others who offered opposing terms. This exercise revealed borrowers’ conflicted feelings, including appreciation for credit in a tough time while also feeling trapped by the difficulty of repaying the loan. Among the descriptions respondents used are: • Convenient • Sweet and Sour: Sweet when they • Rip off give it to you, sour when you’ve got • Evil to pay it back • Never-ending • Simple • Money hungry • Desperate • Lifesaver • Helpful but very dangerous • Should be abolished • Tempting • Takes advantage • Expensive • Emergency rescue • Panic • Friendly • Mistake • Helpful • Scary • Good in an emergency, but dangerous • Too easy • Predatory • Accessible www. You have to pay and you don’t want to because you’re it back right away, and then if you can going to lose the money, and you try to pay it back right away, why would you go think of other options first, and if you and get it to begin with? And I And I carried it for a couple of months had some medical bills that needed to be … and then paid it off with the income paid, and so I asked her about it. I wasn’t paying them back in full • Words to describe payday loans: at the particular time, and I kept trying “Expensive, yeah. Which caused • “You can show them the paycheck, but me to default, and I was behind in a lot they don’t know what are you spending of other areas, and I wasn’t able to take on your expenses outside of that money. I don’t want to, but I don’t know, so I can’t say I won’t do it again because I might need to. Borrowers Want Changes (3) Even if neither (1) nor (2) occurs, to Payday Loans they will continue to use payday Overall, borrowers are divided into three loans if they are in an especially fairly even groups as to whether there diffcult situation and the loans should be major changes, small changes, are available. Pew is conducting further research on the nature of changes that borrowers want to see. Regulation n Those who describe their fnancial Borrowers hold divergent views on situation as good, and those who many aspects of payday lending and describe it as bad. More storefront than Despite this desire for more regulation and online borrowers said they were likely to changes to how payday loans work, 3 in take out another payday loan.

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Proposed comment 15(b)(3)(ii)(B)-3 provides examples of actions that would satisfy the proposed requirements in proposed § 1041 payday loans online. The Bureau is concerned that requiring lenders to delay the payment transfer past its scheduled date could cause consumers to incur late fees and finance charges payday loans in illinois. For example, if the lender attempts to deliver a notice through text message three days before the transfer date and the lender receives a response indicating that the consumer’s phone number is out of service, the lender would not have sufficient time before the scheduled payment transfer date to deliver to payment notice by mail according to the timing requirements in proposed § 1041. Although it would be preferable that consumers received the notice before any transfer in all circumstances, on balance the Bureau believes that the potential harms of causing payment delays outweighs the benefits of requiring that the notice be delivered through another method. The Bureau is concerned that even if lenders were required to deliver the notice through another means, such as mail, that alternative means also may not successfully deliver the notice to the 808 consumer. The Bureau seeks comment on this approach, which would allow lenders to initiate a payment transfer as scheduled in situations when the lender learns of revocation or loss of consent for a particular electronic delivery method after the notice has already been provided. The Bureau also seeks comment on alternative approaches to this payment transfer delay issue. Similar to the timing provisions provided for the electronic short notice, proposed § 1041. The Bureau seeks comment on whether a broader time window should be provided for in- person notices in order to accommodate short-term, single payment loans. The Bureau is aware that for loans with terms of less than two weeks the date of the payment transfer is not far from the origination date. The Bureau seeks comment on whether allowing an in-person notice to be provided up to 14 days before the payment transfer date would ease lender burden requirements and whether extending the time frame would decrease the benefit of the notice to consumers. When the 809 payment transfer has changed in a manner that makes the attempt unusual, proposed § 1041. The Bureau believes that this content would enable consumers to understand the costs and risks associated with each loan payment, consistent with the Bureau’s authority under section 1032 of the Dodd-Frank Act. The Bureau is aware that providing too much or overly complicated information on the notice may prevent consumers from reading and understanding the notice. To maximize the likelihood that consumers would read the notice and retain the most importance pieces of information about an upcoming payment, the Bureau believes that the content requirements should be minimal. In particular, the Bureau considered adding information about other consumer rights, such as stop payment rights for checks and electronic fund transfers, but has concerns that this information may be complicated and distracting. Consumer rights regarding payments are particularly complicated because they vary across payment methods, loan contracts, and whether the authorization is for a one-time or recurring payment. As discussed in Market Concerns— Payments, these rights are often burdensome and costly for consumers to utilize. The Bureau seeks comment on these content requirements as individually detailed below, in particular the inclusion of consumer account information, annual percentage rate or another measure of cost, and the manner of disclosing payment breakdown. The Bureau specifically seeks comment on whether the upcoming payment notice should advise consumers to notify their lender or financial institution immediately if the payment appears to have an error or be otherwise unauthorized. In both cases, the language would have to be substantially similar to the language provided in proposed Model Forms A-3 and A-4 in appendix A. The Bureau believes that this basic information identifying the purpose of the notice and the lender providing the notice would avoid information overload, help show the legitimacy of the notice, and provide a strong motivation for consumers to read the disclosures. The Bureau seeks comment on whether other information is sufficiently critical to consumer awareness that it should be required in the heading. Proposed comment 15(b)(4)(ii)(A)-1 clarifies that the initiation date is the date that the payment transfer is sent outside of the lender’s control. The Bureau realizes that different payment channels have different processing times, and that communications between parties in the chain can also affect timelines. On balance, the Bureau believes that notice of the date that the payment will be initiated would provide the consumer with the best reasonable and consistent estimate across different payment channels of the date by which the consumer must have funds in the account in order for the payment to go through and also would allow the consumer greater opportunity to mitigate potential harms from an unauthorized or unanticipated debit attempt from the consumer’s account. The Bureau believes that, in general, lenders making covered loans initiate payments in accordance with the terms of the loans. In cases when lenders initiate payment in accordance with the terms of the loans, the notice would provide a valuable reminder that could enable the consumer to have funds available if the consumer is able to do so or to contact the lender to make alternative arrangements if the consumer would not be able to cover the payment. Lenders also may debit a consumer’s account soon after an initial attempt fails—sometimes making multiple attempts over a short period of time— or months after the original payment attempt failed. Providing the date of the initiation in the payment notice would alert consumers when this occurs. The Bureau solicits comment on requiring the lender to include the date that the lender will initiate the transfer in the notice and whether there is an alternative date that would be more 812 useful for consumers and knowable to lenders.

But if the consumer is then left with insufficient funds to make payments for major financial obligations payday loans with bad credit, such as a rent payment payday loans e signature, then the consumer may be forced to choose between failing to pay rent when due, forgoing basic needs, or reborrowing. It would require the assessment to be based on projections of the consumer’s net income, major financial obligations, and basic living expenses that are made in accordance with proposed § 1041. It would require that, using such projections, the lender must reasonably conclude that the consumer’s residual income will be sufficient for the consumer to make all payments under the loan and still meet basic living expenses during the term of the loan. It would further require that for a covered longer-term balloon-payment loan, a lender must conclude that the consumer, after making the highest payment under the loan, will continue to be able to meet major financial obligations as they fall due and meet basic living expenses for a period of 30 additional days. The provision would also impose a requirement to determine a consumer’s ability to repay before advancing additional funds under a covered longer-term loan that is a line of credit if such advance would occur more than 180 days after the date of a previous required determination. The Bureau recognizes that lenders decline covered loan applications for a variety of reasons, including to prevent fraud, avoid possible losses, and to comply with State law or other regulatory requirements. Under a line of credit, a consumer typically can obtain advances up to the maximum available credit at the consumer’s discretion, often long after the covered loan was consummated. Each time the consumer obtains an advance under a line of credit, the consumer becomes obligated to make a new payment or series of payments based on the terms of the 531 covered loan. But when significant time has elapsed since the date of a lender’s prior required determination, the facts on which the lender relied in determining the consumer’s ability to repay may have deteriorated significantly. During the Bureau’s outreach to industry, the Small Dollar Roundtable urged the Bureau to require a lender to periodically make a new reasonable determination of ability to repay in connection with a covered loan that is a line of credit. The Bureau believes that the proposed requirement to make a new determination of ability to repay for a line of credit 180 days following a prior required determination appropriately balances the burden on lenders and the protective benefit for consumers. Proposed comment 9(b)-1 provides an overview of the baseline methodology that would be required as part of a reasonable determination of a consumer’s ability to repay in §§ 1041. Proposed comment 9(b)-2 would identify standards for evaluating whether a lender’s ability-to-repay determinations under proposed § 1041. It would clarify minimum requirements of a reasonable ability-to-repay determination; identify assumptions that, if relied upon by the lender, render a determination not reasonable; and establish that the overall 532 performance of a lender’s covered longer-term loans is evidence of whether the lender’s determinations for those covered longer-term loans are reasonable. The proposed standards would not impose bright line rules prohibiting covered longer- term loans based on fixed mathematical ratios or similar distinctions, and they are designed to apply to the wide variety among covered longer-term loans and lender business models. For many lenders and many loans, several aspects of the proposed standards will not be applicable at all. For example, a lender that does not make covered longer-term balloon-payment loans would not have to make the determination under proposed § 1041. Moreover, the Bureau does not anticipate that a lender would need to perform a manual analysis of each prospective loan to determine whether it meets all of the proposed standards. A lender would then apply its own policies and procedures to its underwriting decisions, which the Bureau anticipates could be largely automated for the majority of consumers and covered longer-term loans. It also provides additional interpretation of what makes a determination reasonable. For example, it would note that the determination must include the applicable determinations provided in § 1041. It would also have to be consistent with the lender’s written policies and procedures required under § 1041. The policies and procedures would specify the conclusions that the lender makes based on information it obtains, and lenders would then be able to largely automate application of those policies and procedures for most consumers. The provision would not require a lender to obtain information other than information specified in proposed § 1041. However, a lender might become aware of information that casts doubt on whether a particular consumer would have the ability to repay a 534 particular prospective covered longer-term loan. But if the lender learned that a particular consumer had a transportation or recurring medical expense dramatically in excess of an amount the lender used in estimating basic living expenses for consumers generally, proposed comment 9(b)-2. Instead, it would have to consider the transportation or medical expense and then reach a reasonable determination that the expense does not negate the lender’s otherwise reasonable ability-to-repay determination. The Bureau invites comment on the minimum requirements for making a reasonable determination of ability to repay, including whether additional specificity should be provided in the regulation text or in the commentary with respect to circumstances in which a lender is required to take into account information known by the lender. The first example is a determination that relies on an assumption that the consumer will obtain additional consumer credit to be able to make payments under the covered longer-term loan, to make payments under major financial obligations, or to meet basic living expenses.

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