What Is the Payday Lending Rule?

Payday loans are very popular now, especially among borrowers who need money urgently. Such loans have a range of benefits, although they are often considered predatory because of certain features, such as incredibly high interest rates. People usually turn to payday loans in times of dire need when they are more vulnerable. Often, it leads to a cycle of debt. To protect borrowers from the negative consequences of taking payday loans, the Consumer Financial Protection Bureau issued a rule on payday lending. Since the adoption of this rule, payday lenders must adhere to a set of terms and conditions.

Key Information About Payday Loans

Payday loans are short-term loans, and it usually takes a couple of weeks to repay them. People take payday loans when they need a small amount of money urgently to cover bills or pay for services. When the next payday comes, the borrower should have sufficient funds to repay the loan. Lenders usually offer up to 1000 dollars with these loans. The main disadvantages of payday loans include:

• Steep interest rate. The interest added to a payday loan is a few times bigger than the loan itself. Thus, people need to keep in mind that repaying these loans is quite challenging;
• Cycle of debt. It is easy to fall into a cycle of debt with payday loans due to their unfavorable conditions. You should repay these loans quickly to avoid accumulating more debt and fees.

Of course, payday loans are quick and convenient, but you must consider the disadvantages before taking one.

Payday Lending Rule

According to the payday lending rule, payday lenders must follow some conditions. Here are the key requirements for payday lenders:

• Borrower’s ability to pay off the loan. While other loan types require a thorough examination of the borrower’s ability to pay, such as reviewing their credit history, payday lenders only ask for proof of income and do not consider other factors. These loans are called predatory because many borrowers fail to repay them and are forced to take even more loans to make ends meet. Payday loan providers must ensure that the borrower is able to repay the loan in time;
• Sequential loans. Certain circumstances might force borrowers to take one loan after another. The frequent cause of this situation is the borrower’s inability to cover a payday loan due to its high interest rates. Now, providing more than three payday loans in a row within thirty days of each other is forbidden. Additionally, there is a thirty-day cooldown period afterward;
• Payments protection. When you take a payday loan, the money is usually collected directly from the borrower’s bank account. According to the payday lending rule, lenders are forbidden to try to collect money after two failed attempts at requesting a payment.

These rules are necessary to protect borrowers from getting into more debt, as many people turn to payday loans in a vulnerable state.