Life is filled with challenging scenarios. If you break a leg, you’ll likely have to wear a cast, use crutches or maybe even go through a surgery to get back to where you were. This is not a situation that anyone wants to go through, but it is better than never being able to walk again. In much the same way, it is not good to be in a situation where money is tight, you have no credit and borrowing money from the bank is simply not a possibility. Millions of people who wind up in this situation take out payday loans to get by. This may seem to not be an ideal financial situation to some people, but it beats the alternative of not having money to help get by from one week to the next. If new CFPB regulations take effect, however, the option that lower income Americans have to get payday loans may well go away.
The majority of American consumers may never even give a second thought to going to a payday lending location or going online to get a short term loan because they have other options. People who don’t have those options, though, often consider the ability to take out payday loans to be a godsend. Some watchdog groups believe that they know what is better for these people than they know for themselves. They (namely the CFPB and other liberal do-gooders) have decided that payday loans are not good, and they are working hard to enact new payday lending rules that would more than likely force thousands of payday lenders to close up shop. This could limit access to payday loans severely for several million lower income households.
Payday Loans: The Basics
A payday loan gets its name because this type of loan allows employed people to borrow money that they will pay back when they get their next paycheck from work. Essentially, even though these are unsecured loans, the borrower is using their upcoming paycheck as a type of collateral.
Payday lenders, like all other lending institutions charge fees in return for the services they offer. For example, a borrower might pay $15 for every $100 that they borrow. As long as the borrower pays back the loan on time, they simply pay back $115 and the entire process is complete. Some people, however, choose to extend the term of their loans. When this happens, they roll their loan over into a new loan and have to pay additional fees. This is an aspect of payday loans that the CFPB really doesn’t like. They believe that when people roll over their loans that they wind up trapped in cycles of debt; as if middle income families running up credit cards for years on end is not a cycle of debt. But you don’t see the CFPB going after credit card companies the way that they do payday lenders.
The Straight Facts
Though the CFPB has made it clear that they are hell-bent on making things tough for payday lenders, the fact is that doing so will make the bad situation of being poor, low on cash and unable to borrow money from banks even worse for millions of Americans. Some experts believe that if payday lenders were to disappear from the face of the earth that lower income consumers would be forced to deal with terrible options, like loan sharks when they need money for emergency expenses. No matter what you think about payday lending personally, you have to admit that this is a terrible option and not one that the government should force to take place.
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