In the weeks to come, the Consumer Financial Protection Bureau (CFPB) will be finalizing its payday lending rule. This highly controversial rule would regulate the short-term, small-dollar loans many use when they find themselves in a tight financial situation. The proposed rule, released in June 2016, was intended to prevent consumers from “rolling over” their loans. Much is still unknown about the final proposed rule.
The little bit of information that is available has left many uneasy. If finalized, the regulation would devastate the industry and vulnerable consumers. In fact, according to the CFPB’s own impact analysis, this rule would reduce industry revenue by an estimated 75 percent. In addition, for three-quarters of the 20,000 payday loan shops that service around 12 million American every year, it is the worst news possible.
To understand the full, devastating effects, it is important to grasp who these payday loans predominately support. These individuals have very limited resources. Traditional lines of credit are limited or unavailable and liquid assets are minimal. Any cash cushion they might have had has been used. Short-term financing provides relief for these payday loan users. This solution provides them with the cash they need to pay overdue bills, put food on the table, cover a financial emergency, fix their broken car, etc. In short, these loans provide much needed financial stability.
Consumers are not the only ones with limited options. For a payday loan broker, finding a traditional provider willing to offer payment processing services can be next to impossible. This is where alternative providers like eMerchantBroker have stepped in to offer a payday loan merchant account. High risk providers like EMB specializes in providing an Automated Clearing House (ACH) for high risk credit card holders – regardless of this industry being categorized as “high risk” by traditional providers.
The biggest problem with this rule is that the CFPB failed to study its full potential effects. Instead of conducting thorough research, the agency relied on a limited range of data provided by lenders; this data failed to consider the welfare of