However, he said he disagrees with the CFPB’s approach, opting for a more individualized evaluation of each borrower’s financial circumstances.
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.
Online lenders have the advantage of having developed machine-learning and artificial intelligence-based tools to evaluate borrowers.
They also report to credit bureaus to help thin credit-file customers boost their credit scores.
Three states set lower rate caps or longer terms for somewhat less expensive loans.
Online payday lenders are generally subject to the state licensing laws and rate caps of the state where the borrower receives the loan.Lenders hold the checks until the borrower’s next payday when loans and the finance charge must be paid in one lump sum.To pay a loan, borrowers can redeem the check by paying the loan with cash, allow the check to be deposited at the bank, or just pay the finance charge to roll the loan over for another pay period.High cost payday lending is authorized by state laws or regulations in thirty-two states.Fifteen states and the District of Columbia protect their borrowers from high-cost payday lending with reasonable small loan rate caps or other prohibitions.Under the new CFPB rules finalized last week, starting in 2019, lenders will need to determine whether the borrower can afford the loan payments and meet living costs and other financial obligations.The industry has come under fire from consumer advocates for trapping consumers into loans that roll over when they aren’t able to pay. Most require proof of income and identification requirements but don’t carry out a credit check or a detailed review of an borrower’s ability to pay.“There are so many inherent problems [with payday lending],” said Ken Rees, CEO of Elevate, an online lender that focuses on non-prime borrowers.“What’s going to come of this is the primary forms of credit originated to non-prime customers will move away from payday to longer-term forms of credit that have less negative consequences for consumers.” To Rees, who said some payday lenders have approached Elevate asking whether it can take their customers, consolidation of the payday lending industry is a mostly likely follow-on effect of the new rules.The finance charge ranges from to to borrow 0.For two-week loans, these finance charges result in interest rates from 390 to 780% APR. Rates are higher in states that do not cap the maximum cost.