Will New CFB Rules Kill Payday Lenders?

Jun 25, 2015

New proposed rules by the Consumer Financial Protection Bureau (CFPB) would lead to substantial consolidation in the short-term payday industry of almost 70%. For the last few years, the CFPB has warned that it may take action against payday lenders due to claims that payday lenders perpetuated consumer debt. A recent report by global consulting firm, Charles River Associates, projected that the new rules would reduce payday loan revenue by 82 percent.

 

The CFPB outlined a framework for the proposed rules; lenders could choose between debt prevention and debt trap protection. Under the debt prevention option, lenders would verify a prospective borrower’s income and debt history to assess their ability to repay a loan, before lending money. This plan is similar to what a consumer would have to go through if they wanted a conventional loan from more traditional lenders like a bank or small loan association.

The second option involves debt trap protection that would not require lenders to determine a consumer’s ability to pay, but would limit all loans to only $500 with one finance charge. In addition, payday lenders would be unable to hold a vehicle title as collateral. The changes if enacted, could have a monumental effect on the industry, especially in areas with a high concentration of monoline lenders where many in the local population are unable to qualify for any other kind of loan.

 

Here is how payday loans work: a consumer needs cash fast and may not qualify for a traditional loan, so they borrow a few hundred dollars from a payday lender.  But lenders only give them a short period to repay the loan.  In addition, the consumer writes a check for the cost of the original loan plus fees. The process seems so easy that the consumer generally makes multiple loans while being charged between $20 and $55 per transaction in fees. The borrower is only given a small window to pay back the loan with rates that can reach up to 700 percent. And often cannot pay enough in time to pay on the principal of the loan.

 

Payday loans have become popular because they are a fast and easy way for consumers to get quick cash. The CFPB cautions consumers against payday loans as they are really easy to get into but very difficult for consumers to pay back. The consumer advocate agency fears that most borrowers will not have the time or money to repay the high interest on payday loans, which can lead to a vicious cycle of abusive lending.

 

The CFPB will be ruling soon on the new proposed rules. But payday loan merchants can still make major profits in the lending industry. eMerchantBroker.com has the payday loan merchant account managers that can keep your payday business generating profits with multiple payment options for your customers.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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