New Responsible Lending Laws About Payday Loans With No Credit Checks
Though many states have already banned all sorts of payday lending programs, including payday loans with no credit checks, many others where this form of lending is still legal are in the process of coming up with stricter laws that should keep a check on it. The biggest problem with this type of lending is that it is unreasonably very costly and that low-income consumers are its main target customers. They borrow very small amount of loans, but they have to repay a significantly much larger sum of money. For example, a recent real life example that was publish in a local newspaper was about a consumer who borrowed a small payday loan of $300 for a period of three weeks only and was expected to pay back over $850. For a person with low income, it is almost impossible to arrange that much fund to ensure timely repayment. When they fail to repay the loan in time, it traps them into a never ending series of debts.
What Do The New Responsible Lending Provisions Talk About?
As per the new responsible lending provisions, no lenders, including the ones that offer payday loans with no credit checks, cannot provide any type of credit product or service that are
not in the interest of consumers. Payday lending, despite all its lucrative features, does not make a wise financial decision for consumers and is completely unsuitable for the actual needs of consumers. This harsh fact goes against the very basic concept of payday loans that claim to be a financing option to those who need money in urgent financial crisis of temporary nature. The vast majority of borrowers do not have the capacity to repay these loans because of the extremely high cost associated with the same. Considering this very fact, the federal trade commission and various consumer protection organizations have declared payday lending as a form of predatory lending, where lenders make money by taking advantage of the financially vulnerable situation of consumers. Lenders first attract consumers by advertising their loans and easy and cheap, but they eventually turn out to be so costly for the borrowers that a large number of them even go bankrupt. In fact, these have been the very basic reasons why sixteen
states in the US have already banned payday lending.
The Logics That Lenders Give Against These Provisions
Lenders that offer payday loans with no credit checks, however, have their own logics against the responsible lending provisions. As per them, it is almost impossible for a lender to go over the board and make a judgment regarding the financial capacity of a payday loan applicant. They have to rely mostly on the information provided by the applicants. And, most importantly, since consumers are already interested in borrowing these loans, why should they be stopped from using their basic right? But, such logics do not make much sense because the consumers that get look for such expensive loans are the financially desperate ones. They often have poor or bad credit and do not have many options to borrow money using the conventional methods. So, they feel highly tempted to apply for payday loans. Lenders take advantage of the consumers’ desperation for finance.
Overall, if you look at the cumulative impact of payday lending on financially weak consumers, you will not have to put a lot of effort o understand that payday loans with no credit checks and all other forms of payday lending are far from responsible.
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