New Regulations to Oversee Payday Lending

Jun 29, 2010, 06:00 ET from AboutPaydayLoans

LOS ANGELES, June 29 /PRNewswire/ -- AboutPaydayLoans  - In the aftermath of the subprime mortgage collapse, a new agency emerges with the initial goal of overseeing nearly all aspects of consumer finance in order to regulate and hopefully prevent another economic crisis.  This new Consumer Financial Protection Bureau (CFPB), which was originally proposed to be a stand-alone "agency" as opposed to the approved bureau which lacks the same enforcement authority, is still going to change the current landscape of consumer credit options in more ways than we can currently predict.

For example, small auto-dealerships who offer finance options to their customers were originally set to be regulated by this new agency, but a strong push by auto industry lobbyists was successful in securing a "carve-out" to exempt over 18,000 auto dealers from the regulatory reach of the CFPB.  Many opposed this loophole, yet after much debate the auto industry secured a victory by dodging this new regulation.  

Some financial analysts argue that although these new regulations are meant to protect consumers from "tricky" financial terms and language, the real effect of new regulation will actually lead to many smaller businesses pulling their finance options from the sales floor, leaving many consumers with no options to finance their children's braces or a cheap used car to get to work.  Many project that this will not only lead to thousands of job losses in industries such as auto sales and payday lending, but will ultimately harm consumers by limiting their already slim selection of small short-term credit options as opposed to "protecting" them from these finance options.  Most of these finance options are already required by law to ensure that all terms of the loan are fully disclosed.  

One industry that did not receive the benefit of an exemption is the payday loan industry.  Payday loans are aimed at giving those with bad credit to obtain a short-term loan to help out when they need finance until their next paycheck, and many companies such as are direct payday lenders, who lend responsibly and honestly.  Paycheck advance loans are already regulated by State laws, but will now be regulated by the CFPB but still enforced at the State level, which is a top headline in current  payday loan news for lenders all across America.

One interesting point of this new regulation is that the Treasury has been given orders to create a new program that will attempt to provide loans for the unbanked, or those who currently have no credit options other than a payday loan, which does require you to have a bank account.  It will certainly be interesting to see how this will be setup, and what APR's will be applied in order to cover loan defaults.  

Regardless of the goals of this new reform we will certainly be seeing the impact of the CFPB for years to come, across many industries.  We all hope this will actually benefit consumers and our economy in the long run.  

SOURCE AboutPaydayLoans