Payday Lenders Vs. Lenders Essay

1278 Words Dec 1st, 2016 6 Pages
Whether they offer payday loans online or through a physical store, payday lenders have been under attack for years. Many state legislators and municipal governments have enacted rules regulating the amount of interest lenders can charge for bad credit payday loans, how many loans a borrower can have at one time and how many times a borrower can renew a loan. However, the rules proposed by the Consumer Financial Protection Bureau mark the first attempt to regulate payday loan industry at the federal level. Because the proposed regulations would require drastic changes to the business practices used by payday lenders, the industry has been forced to defend its business model.

Current Payday Loan Business Model that Lenders Are Defending in the Face of Federal Clampdown
Most payday lenders have a very simple business model. Borrowers must show proof of steady income and have a checking account. Based on this information, lenders agree to give the borrower cash, and borrowers agree to give the lender a postdated check for the full amount of the loan plus the lender 's fees. For online payday loans, borrowers typically authorize the lender to make an electronic withdrawal of funds from their bank accounts on the due date of the loan. If borrowers are unable to repay the loan when it is due, they can typically renew the loan by paying just the fees.

The current business model is straightforward and simple to administer. Employees who assist customers and who approve the loans…

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