2018, Mercer University, Karlen's review: "Payday loans online".
As discussed above in Market Concerns—Longer-Term Loans payday loan instant approval, failure to first determine that the loan payments will be within a consumer’s ability to repay causes or is likely to cause many consumers to receive loans with payments that exceed their ability to repay how get payday loan. By engaging in practices that increase the likelihood internet payday cash loan, magnitude, and severity of the risks to consumers, the lender’s actions cause or are likely to cause substantial injury. The injury that is easiest to observe and quantify is the extent to which the practice of making these loans without assessing the consumer’s ability to repay leads to default. As discussed above, lenders that do not determine ability to repay commonly have default rates of 30 percent and as high as 55 percent. In the case of a loan for which the lender obtains the ability to extract loan payments from the consumer’s bank account, the course of default typically includes several attempts by a lender to extract the payments, which fail due to insufficient funds in the account. In the case of an auto title loan, the lender may repossess the consumer’s car, which can in turn result in inability to travel to work and loss of employment. As discussed above in part Market Concerns—Longer-Term Loans, evidence shows that over one in ten vehicle title installment loan sequences leads to repossession. Even consumers who are able to make all of their payments on a payday installment or vehicle title installment loan can suffer substantial injury as a result of the failure of the lender to assess whether the consumer can afford to repay the loan. As discussed in Market Concerns— Longer-Term Loans the lender may extract, or the consumer may make, loan payments which 492 leave the consumer unable to meet other financial obligations as they fall due and meet basic living expenses as they arise. Indeed, when a loan is an auto title loan or provides the lender the ability to extract loan payments from the consumer’s bank account or paycheck, the lender is likely to receive payment even when that leaves the consumer with insufficient funds to meet other obligations and expenses. At a minimum, as discussed above in Market Concerns— Longer-Term Loans, the consumer loses control over her finances, including the ability to prioritize payments of her obligations and expenses based on the timing of her receipts of income. This injury is especially likely to occur when a lender times the unaffordable loan payments to coincide with the consumer’s receipts of income, which is common with covered longer-term loans. The consumer is then left with insufficient funds to meet other financial obligations and basic living expenses. For example, a consumer may then be unable to meet expenses such as food, medical care, daycare for dependent children, transportation, or other expenses that are essential for maintaining her source of income. Such consequences could occur prior to a default—if the lender for a time was able to exact unaffordable payments from the consumer’s account—or could occur in lieu of a default, if the lender is able to consistently extract payments that are not affordable. In addition, it is common for depository institutions to honor a payment of a deposited post-dated check or electronic debit even if the payment exceeds the consumer’s account balance. In that case, the result is that the payment results in overdraft of the consumer’s account, which typically leads to substantial fees imposed on the consumer and, if the consumer cannot clear the overdraft, may lead to involuntary account closure and even exclusion from the banking system. As discussed above in Market Concerns—Longer- Term Loans, refinancing and reborrowing are especially likely to be provoked by a balloon payment, and refinancing and reborrowing are especially likely to add dramatically to total costs when the payments preceding a balloon-payment are interest-only payments, as is common. In that case, refinancing or reborrowing may bring about new finance charges equal to what the consumer paid under the prior loan, because the payments on the prior loan did little, if anything, to amortize the principal. The additional cost is then the result of the original, unaffordable loan, and constitutes injury because it is a cost that the consumer almost certainly did not anticipate and take into account at the time she decided to take out the original loan. The higher the total cost of credit, the greater the injury to consumers from these unanticipated costs. It appears that many consumers cannot reasonably avoid the injury that results when a lender makes a covered longer-term loan and does not determine that the loan payments are within the consumer’s ability to repay. But a confluence of factors creates obstacles to free and informed consumer decision-making, preventing consumers from being able to reasonably anticipate the likelihood and severity of injuries that frequently result from such loans. And after entering into the loan, consumers do not have the means to avoid the injuries that may result should the loan prove unaffordable. Many consumers are unable to reasonably anticipate the risk that payments under a prospective covered longer-term loan will be unaffordable to them or the range and severity of the harm they will suffer if payments under the loan do prove unaffordable. Based, in part, on their experience with other credit products, they have no reason to understand the way lenders use the ability to extract unaffordable payments from borrowers to make more loans, larger loans, and loans with less affordable payment schedules than they otherwise would while disregarding the affordability of loan payments to a consumer. For example, few consumers are likely aware that an auto title lender may base its underwriting decisions in part on the borrower’s perceived attachment to and practical reliance on a vehicle, rather than on the consumer’s ability to make loan payments or even on the resale value of the car alone. Similarly, based on their experience with other credit products, few, if any, consumers are likely aware of the high percentage of covered longer-term loans that result in default or collateral harms from unaffordable payments or that lenders are able to stay in business and profit even when so many consumers default. On the contrary, consumers reasonably expect that the lender’s continued existence means the vast majority of a lender’s loans are successfully repaid, and that a lender that makes them a covered longer term loan has determined that they are in approximately as good of a financial position to be able to repay the loan as the other 495 consumers who borrow and repay successfully. As a result, a consumer is unlikely to appreciate the high degree of vigilance she must exercise to ensure that loan payments will in fact be within her ability to repay. In theory, a consumer who realized the importance of being so vigilant could avoid injury by self-underwriting. However, consumers’ ability to make accurate assessments is hindered by the specific conditions under which these borrowers seek out such credit in the first place. A consumer seeking to take out a payday installment or vehicle title installment loan is unlikely to have a recent history of a regular periodic excess of income above expenditures (i. Instead, to assess her own ability to repay, the consumer would have to assess, at a time of high need and high stress, what level of recent expenditures she could eliminate or reduce, and what additional income she could bring in, immediately and for the full term of the loan. Consumers attempting such assessments would likely fall back on the assumption that other similarly situated consumers must have been able to repay covered longer-term loans under the offered terms, and that she is therefore likely to be able to do so too. As discussed above, even if a consumer considering offered loan terms actually attempts such a mental budget exercise, in which she postulates what amounts of recent expenses she could eliminate or of extra income she could bring in going forward, such on-the-fly estimates are highly likely to overestimate her true ability to repay. As discussed above in Market Concerns—Longer-Term Loans, decision-making of consumers confronting time pressure and financial distress are especially likely to be affected by optimism bias.
Another 2012 survey of over 1 payday faxing no loan,100 users of alternative small-dollar credit products payday loan san diego, including pawn getting a payday loan, payday, auto title, deposit advance products, and non-bank installment loans, asked separate questions about what borrowers used the loan proceeds for and what precipitated the loan. Responses were reported for “very short term” and “short term” credit; very short term referred to payday, pawn, and deposit advance products. Respondents could report up to three reasons for what precipitated the loan; the most common reason given for very short term borrowing (approximately 37 percent of respondents) was “I had a bill or payment due before my paycheck arrived,” which the authors of the report on the survey results interpret as a mismatch in the timing of income and expenses. Unexpected expenses were cited by 30 percent of very short term borrowers, and approximately 27 percent reported unexpected drops in income. Approximately 34 percent reported that their general living expenses were consistently more than their income. Respondents could also report up to three uses for the funds; the most common answers related to paying for routine expenses, with over 40 percent reporting the funds were used to “pay utility bills,” over 40 percent reporting the funds were used to pay “general 450 Elliehausen, An Analysis of Consumers’ Use of Payday Loans, at 35. Of all the reasons for borrowing, consistent shortfalls in income relative to expenses was the response most highly 452 correlated with consumers reporting repeated usage or rollovers. A recent survey of 768 online payday users drawn from a large administrative database of payday borrowers looked at similar questions, and compared the answers of heavy and light 453 users of online loans. Based on borrowers’ self-reported borrowing history, borrowers were segmented into heavy users (users with borrowing frequency in the top quartile of the dataset) and light users (bottom quartile). Heavy users were much more likely to report that they “[i]n past three months, often or always ran out of money before the end of the month” (60 percent versus 34 percent). In addition, heavy users were nearly twice as likely as light users to state their primary reason for seeking their most recent payday loan as being to pay for “regular expenses such as utilities, car payment, credit card bill, or prescriptions” (49 percent versus 28 percent). Heavy users were less than half as likely as light users to state their reason as being to pay for an “unexpected expense or emergency” (21 percent versus 43 percent). Notably, 18 percent of heavy users gave as their primary reason for seeking a payday loan online that they “had a storefront loan, needed another [loan]” as compared to just over 1 percent of light users. Lender Practices The business model of lenders who make payday and single-payment vehicle title loans is predicated on the lenders’ ability to secure extensive reborrowing. As described in the Background section, the typical storefront payday loan has a principal amount of $350, and the 452 Id. That means that if a consumer takes out such a loan and repays the loan when it is due without reborrowing, the typical loan would produce roughly $50 in revenue to the lender. Lenders would thus require a large number of “one-and-done” consumers to cover their overhead and acquisition costs and generate profits. Online lenders do not have the same overhead costs, but they have been willing to pay substantial acquisition costs to lead generators and to incur substantial fraud losses because of their ability to secure more than a single fee from their borrowers. The Bureau uses the term “reborrow” to refer to situations in which consumers either roll over a loan (which means they pay a fee to defer payment of the principal for an additional period of time), or take out a new loan within a short period time following a previous loan. Reborrowing can occur concurrently with repayment in back-to-back transactions or can occur shortly thereafter. The Bureau believes that reborrowing often indicates that the previous loan was beyond the consumer’s ability to repay and meet the consumer’s other major financial obligations and basic living expenses. As discussed in more detail in the section-by-section analysis of proposed § 1041. While the Bureau’s 2014 Data Point used a 14-day period and the Small Business Review Panel Outline used a 60-day period, the Bureau is using a 30-day period in this proposal to align with consumer expense cycles, which are typically a month in length. This is designed to account for the fact that where repaying a loan causes a shortfall, the consumer may 213 src="http://www. Unless otherwise noted, this section, Market Concerns—Short-Term Loans, uses a 30-day period to determine whether a loan is part of a loan sequence. The majority of lending revenue earned by storefront payday lenders and lenders that make single-payment vehicle title loans comes from borrowers who reborrow multiple times and become enmeshed in long loan sequences. Based on the Bureau’s data analysis, more than half 454 of payday loans are in sequences that contain 10 loans or more. Looking just at loans made to borrowers who are paid weekly, bi-weekly, or semi-monthly, approximately 21 percent of loans are in sequences that are 20 loans or longer. As discussed below, the Bureau believes that both the short term and the single-payment structure of these loans contributes to the long sequences the borrowers take out. Various lender practices exacerbate the problem by marketing to borrowers who are particularly likely to wind up in long sequences of loans, by failing to screen out borrowers likely to wind up in long-term debt or to establish guardrails to avoid long-term indebtedness, and by actively encouraging borrowers to continue to roll over or reborrow. Loan Structure The single-payment structure and short duration of these loans makes them difficult to repay: within the space of a single income or expense cycle, a consumer with little to no savings cushion and who has borrowed to meet an unexpected expense or income shortfall, or who chronically runs short of funds, is unlikely to have the available cash needed to repay the full 454 This is true regardless of whether sequence is defined using either a 14-day, 30-day, or 60-day period to determine whether loans are within the same loan sequence. This is true for loans of a very short duration regardless of how the loan may be categorized. Loans of this type, as they exist in the market today, typically take the form of single-payment loans, including payday loans, and vehicle title loans, though other types of 455 credit products are possible.
The Bureau believes that lenders would most likely comply with this requirement by using computerized recordkeeping auto fast loan payday. A lender operating a single storefront would need a system of recording the loans made from that storefront and accessing those loans by consumer payday loan canada. A lender operating multiple storefronts or multiple affiliates would need a centralized set of records or a way of accessing the records of all of the storefronts or affiliates loan payday cash. A lender operating solely online would presumably maintain a single set of records; if it maintained multiple sets of records, it would need a way to access each set of records. The Bureau believes that most small entities already have the ability to comply with this provision, with the possible exception of those with affiliates that are run as separate operations. In addition, lenders need to track the borrowing and repayment behavior of individual consumers to reduce their credit risk, such as by avoiding lending to a consumer who has defaulted on a prior loan. And most States that allow payday lending (at least 23) have requirements that implicitly require lenders to have the ability to check their records for prior loans to a loan applicant, including limitations on renewals or rollovers or cooling-off periods between loans. Despite these various considerations, however, there may be some lenders that currently do not have the capacity to comply with this requirement. Costs to Small Entities Small entities that do not already have a records system in place would need to incur a one-time cost of developing such a system, which may require investment in information technology hardware and/or software. The Bureau estimates that purchasing necessary hardware and software would cost approximately $2,000, plus $1,000 for each additional storefront. The Bureau estimates that firms that already have standard personal computer hardware, but no electronic record keeping system, would need to incur a cost of approximately $500 per storefront. Lenders may instead contract with a vendor to supply part or all of the systems and training needs. As noted above, the Bureau believes that many lenders use automated loan origination systems and would modify those systems or purchase upgrades to those systems such that they would automatically access the lender’s own records. For lenders that access their records manually, rather than through an automated origination system, the Bureau estimates that doing so will take three minutes of an employee’s time. Obtaining a Consumer Report from a Registered Information System 1085 Under the proposed rule, small entities would have to obtain a consumer report from a registered information system containing information about the consumer’s borrowing history across lenders, if one or more such systems were available. The Bureau believes that many lenders likely already work with firms that provide some of the information that would be included in the registered information system data, such as in States where a private third-party operates reporting systems on behalf of the State regulator or for their own risk management purposes, such as fraud detection. However, the Bureau recognizes that there also is a sizable segment of lenders making covered short-term loans who operate only in States without a State- mandated reporting system and who make lending decisions without obtaining any data from a consumer reporting agency. Costs to Small Entities As noted above, the Bureau believes that many small entities use automated loan origination systems and would modify those systems or purchase upgrades to those systems such that they would automatically order a report from a registered information system during the lending process. For lenders that order reports manually, the Bureau estimates that it would take approximately three minutes for a lender to request a report from a registered information system. For all lenders, the Bureau expects that access to a registered information system would be priced on a “per-hit” basis, where a hit is a report successfully returned in response to a request for information about a particular consumer at a particular point in time. Based on industry outreach, the Bureau estimates that the cost to small entities would be $0. Obtaining Information and Verification Evidence about Income and Major Financial Obligations and Making Ability-to-Repay Determination 1086 The proposed rule would require lenders to obtain information and verification evidence about the amount and timing of an applicant’s net income and payments for major financial obligations, to obtain a statement from applicants describing their income and payments on major financial obligations, and to assess that information to determine whether a consumer has the ability to repay the loan. The Bureau believes that many small entities that make covered short-term loans, such as small storefront lenders making payday loans, already obtain some information on consumers’ income. Many of these lenders, however, only obtain income verification evidence the first time they make a loan to a consumer or for the first loan following a substantial break in borrowing. Other lenders, such as some vehicle title lenders or some lenders operating online, may not currently obtain income information at all, let alone verification evidence for that information, on any loans. In addition, many consumers likely have multiple income sources that are not all currently documented in the ordinary course of short-term lending. Under the proposal, consumers and lenders may have incentives to provide and gather more income information than they do currently in order to establish the borrower’s ability to repay a given loan. The Bureau believes that most lenders that originate covered short-term loans do not currently collect information on applicants’ major financial obligations, let alone verification evidence of such obligations, nor do they determine consumers’ ability to repay a loan, as would be required under the proposed rule. These lenders would likely modify those systems or purchase upgrades to those systems to automate many of the tasks that would be required by the proposal. This would be in addition to the cost of obtaining a consumer report from a registered information system. Verification evidence for housing expenses may be included on an applicant’s consumer report, if the applicant has a mortgage; otherwise, verification costs could consist of obtaining documentation of rent payments estimating a consumer’s housing expense based on the housing expenses of similarly situated consumers with households in their area. The Bureau believes that many lenders will purchase reports from specialty consumer reporting agencies that will contain both debt information from a national consumer reporting agency and housing expense estimates. Based on industry outreach, the Bureau believes these reports will cost approximately $2.
These include costs associated with establishing a relationship with each registered information system and developing procedures for furnishing the loan data payday loan debt settlement. Lenders using automated loan origination systems would likely modify those systems one hour payday loan direct lenders, or purchase upgrades to those systems advance cash loan payday online, to incorporate the ability to furnish the required information to registered information systems. Lenders with automated loan origination and servicing systems with the capacity to furnish the required data would have very low ongoing costs. For example, lenders or vendors may develop systems that would automatically transmit loan data to registered information systems. Some software vendors that serve lenders that make payday and other loans have developed enhancements to enable these lenders to report loan information automatically to existing State reporting systems; 1078 src="http://www. Lenders that report information manually would likely do so through a web-based form, which the Bureau estimates would take five to 10 minutes to fill out for each loan at the time of consummation, and when the loan ceases to be an outstanding loan, as well as other times when lenders must furnish any updates to information previously furnished. Assuming that multiple registered information systems existed, it might be necessary to incur this cost multiple times, although common data standards or other approaches may minimize such costs. In addition to the costs of developing procedures for furnishing the specified information to registered information systems, lenders would also need to train their staff in those procedures. The Bureau estimates that lender personnel engaging in furnishing information would require approximately half an hour of initial training in carrying out the tasks described in this section and 15 minutes of periodic ongoing training per year. Recordkeeping Requirements The proposed rule imposes new data retention requirements for the requirements to assess borrowers’ ability to repay and alternatives to the requirement to assess borrowers’ ability to repay for both covered short-term and covered longer-term loans by requiring lenders to maintain evidence of compliance in electronic tabular format for certain records. The proposed retention period is 36 months, as discussed above in the section-by-section analysis for proposed § 1041. The following section discusses the costs of the new recordkeeping requirements on small entities that originate covered short-term loans and those originating covered longer-term loans. Costs to Small Entities Originating Covered Short-Term Loans The data retention requirement in the proposed rule may result in costs to small entities. The Bureau believes that not all small lenders currently maintain data in an electronic tabular format. To comply with the proposed record retention provisions, therefore, lenders originating covered short-term loans may be required to reconfigure existing document production and retention systems. For small entities that maintain their own compliance systems and software, the Bureau does not believe that adding the capacity to maintain data in an electronic tabular format will impose a substantial burden. The Bureau believes that the primary cost will be one- time systems changes that could be accomplished at the same time that systems changes are carried out to comply with the Requirements and Alternatives to the Requirements to Assess Borrowers’ Ability to Repay. Similarly, small entities that rely on vendors would likely rely on vendor software and systems to comply in part with the data retention requirements. The Bureau estimates that lender personnel engaging in recordkeeping would require approximately half an hour of initial training in carrying out the tasks described in this section and 15 minutes of periodic ongoing training per year. Costs to Small Entities Originating Covered Longer-Term Loans The Bureau estimates that the costs associated with the new recordkeeping requirements of the proposed rule on small entities originating covered longer-term loans are the same as the costs on small entities originating covered short-term loans, as described above. Compliance Requirements The analysis below discusses the costs of compliance for small entities of the following major proposed provisions: 1. Requirement to determine borrowers’ ability to repay, including the requirement to obtain a consumer report from registered information systems; b. Alternative to the requirement to determine borrowers’ ability to repay, including notices to consumers taking out loans originated under this alternative; 2. Requirement to determine borrowers’ ability to repay, including the requirement to obtain information from registered information systems; b. Limitations on making loans to borrowers with recent covered loans: and, 1081 src="http://www. Limitations on continuing to attempt to withdraw money from a borrower’s account after two consecutive failed attempts; and, b. The discussions of the impacts are organized into the three main categories of provisions listed above—those relating to covered short-term loans, those relating to covered longer-term loans, and those relating to limitations of payment practices. Within each of these main categories, the discussion is organized to facilitate a clear and complete consideration of the impacts of the major provisions of the proposed rule on small entities. In considering the potential impacts of the proposal, the Bureau takes as the baseline for the analysis the regulatory regime that currently exists for the covered products and covered 1061 persons. These include State laws and regulations; Federal laws, such as the Military Lending Act, the Fair Credit Reporting Act, the Fair Debt Collections Practices Act, the Truth in Lending Act, the Electronic Funds Transfer Act, and the regulations promulgated under those laws; and, with regard to depository institutions that make covered loans, the guidance and 1062 policy statements of those institutions’ prudential regulators. The baseline for evaluating the full potential benefits, costs, and impacts of the proposal, however, is the current regulatory regime as of the issuance of the proposal. The Bureau solicits comments on all aspects of quantitative estimates provided below, as well as comments on the qualitative discussion where quantitative estimates are not provided. The Bureau also solicits data and analysis that would supplement the quantitative analysis discussed below or provide quantitative estimates of benefits, costs, or impacts for which there are currently only qualitative discussions.
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