In the year 2012, the Consumer Financial Protection Bureau conducted a series of investigations into the world of direct payday lenders being offered by a growing number of depository institutions. http://www.bfwggrants.org.uk

2. In the year 2012, the Consumer Financial
Protection Bureau conducted a series of
investigations into the world of direct payday
lenders being offered by a growing number of
depository institutions. The purpose of these
investigations was to analyze different ways of
introducing the customer a more stable, friendly
and at the same time a competitive payday
loans market. The need for such forums was
emphasized in furthering this industry like any
other industry but not at the cost of the
borrower.

3. Through this forum, it was found that there
needs to be sufficient amount of data that needs
to be established which could present a true
picture of the payday lending market and what
impact they are having on the customer
including the need to understand how the use of
such products is affecting the borrower from a
long term point of view.

4. This was not just limited to the institutions that
were in charge of this industry but first hand
consumer feedback was taken which displayed
the commitment towards change. Although
consumers did favour the accessibility of the
loan, the availability of these loans for
consumers who don’t qualify for other lines of
credit and the consumers ability to use these
financial products as a definite mean to avoid
overdrawing a deposit account or in the case of
late payment of bills.

6. Direct payday lenders generally serve the
purpose of bridging the gap between your
income and expenses. No matter what your
source of income is, there are always
unprecedented expenses which one should be
prepared for, is the vision with which this
institution was set up. Payday loans are
typically charged not on the basis of a
predetermined market rate which is usually not
subject to change, but on the basis of the
amount of loan you have borrowed,
irrespective of the loan duration.

7. Cost: What is the cost of a payday loan? The cost of a
payday loan is typically defined by the amount you
have borrowed and usually does not vary with the
duration of the loan. The cost is expressed as an
interest fee usually on the parameter of every 100
pounds you borrow and usually ranges between 10
pounds to 20 pounds. If there is a variation, it is
usually because of state laws differentiating from state
to state with them allowing maximum payable fees. A
fee of 15 pounds for 100 pounds of a loan amount is
found to be most common with an average APR of
391% on a typical 15 day loan. However this varies
and there are certain lenders who offer APR as high as
6000%.

8. Eligibility: Many states have a limit on the size of the
loan available which could be a maximum of 500
pounds. In order to be eligible for a loan, all you are
required to do is to present identification and a
documentation of income along with a personal
deposit account. There is usually no other financial
obligation and your credit score is usually not a
precedent in being eligible to apply for such a loan.
There are some lenders who check your credit rating
through various specialty credit firms to check your
capacity to pay and whether you have defaulted on
your previous payday loans. Since they have access
to your deposit account, there is no other collateral
found necessary.

10. Repayment: Direct payday lenders expect
their borrowers to come to the store front on
the due date to pay back the loan. If they are
unable to do so, there is a fee which is payable
to the borrower equal to the finance charge
during the initial loan and they are allowed to
roll over their loan. However there are certain
state laws which are against the rolling over of
loans. This means that it is the responsibility of
the borrower to ensure he pays back the full
loan amount and then quickly takes out
another loan.

11. Limits on Repeated Use: Payday lending has been largely
governed by state law and there have been times where there
has been legislated to amend state usury laws to allow payday
lending in that particular state. Hence, payday lenders are
required to comply with the laws of the state in which they
function. After the regulations on the industry, the states are
making an attempt to limit the sustained use of payday lenders
which includes provisions such as limiting the number of times
you can roll over a loan, requirements to offer extended
repayment plans, grace periods between loans that are
triggered over a period of time indebted, limits on the amount
of loan dependent on the amount of income you have and
lastly the limit on the number of times you can take a new loan
over a particular period of time.

12. Another avenue that has not been given enough
attention is the world of online payday lending.
Although online payday lenders make up only a
minority of the amount of loans worldwide, it has been
observed that they are rising and within a few years,
will overtake the store front volume. Variations on the
loan structure such as online payday installment loans
and more open-ended lines of credit are becoming
more common. In the online method, a borrower
completes the entire procedure online and all the
authorization is done online for the lender to debit his
account at the time of loan repayment.

14. In the field of online payday lending, all the
instructions are meant to be displayed in a
clear and transparent manner in order to
ensure that all the terms and conditions of
loans are communicated properly. If the online
loan is set to roll over automatically, the
borrower must contact the lender a few days
before the electronic withdrawal is mainly to
communicate that they wish to pay the loan in
full.

15. For more information go homepage:
www.bfwggrants.org.uk

16. Thank You