continue to flock to the relief offered by cash loans and payday advances, federal regulators are working to make the industry more transparent. According to American Banker, this could make the use of such financial options safer for struggling Americans.
A recent survey from the Federal Deposit Insurance Corporation indicates that in 2022, an estimated 21 million families relied on the financial services of payday loan advances. It’s because of this popularity that federal regulators are starting to look closely at the industry.
Some advocates claim that more regulation could restrict access to payday loans – doing more harm than good. Specifically, consumers may pursue more costly options to cover unexpected bills, such as overdrafting bank accounts or paying fees after a check bounces.
However, payday loans shouldn’t be used for every unexpected expense that pops up. Some emergency situations where use is appropriate include:
• A car repair bill
• A medical expense
• Covering rent to avoid eviction
In contrast, there are a number of situations where the use of a payday loan is inappropriate, such as:
• To go shopping
• Pay for a vacation
• Fund the purchase of a car
• Make an investment
Government agencies, such as the Consumer Financial Protection Bureau, hope to make the entire industry more transparent. In addition, the CFPB hopes to educate Americans on how to properly utilize a payday advance loan and what risks may be involved.
According to a recent study conducted by JMP, an estimated 36 percent of short-term loans, including cash advances, were originated online in 2022. However, forecasts anticipate this share to grow to 68 percent by 2025. Though unlikely, some consumers could be dealing with illegitimate lenders or get involved in a predatory scheme, despite there being many reliable options. This is why it’s important to always double-check that a payday lender is a legitimate operation, especially when business is not being conducted face-to-face.
While specific regulations have yet to be announced, the CFPB, which was established under the Dodd-Frank Consumer Protection Act, has already laid the foundation for making the payday loan industry a safer place for consumers.…