Los Angeles, CA (Vocus) July 28, 2010
According to AboutPaydayLoan.com, A new financial protection bill that has recently passed the senate and has been signed by President Barack Obama has many businesses fearing the outcome that the far-reaching new Consumer Financial Protection Bureau (CFPB) will have on their businesses. The CFPB, now being referred to as the Bureau of Consumer Financial Protection (BCFP), is a new agency in response to the sub-prime mortgage crisis and the subsequent economic collapse, which is set to oversee and regulate nearly all consumer financial products, even those who had no ties to our current economic crisis. It is this far reaching, and rather vague power that has many businesses, including payday loan lenders such as Solomon Internet Funding, wondering what the actual implications of the new BCFP will prove to be.
One of the biggest concerns of most small businesses about the BCFP is that the limits of their regulation and authority are not very clearly defined at this point. And seeing that this new agency could be governing “loans” from small TV and appliance purchases, all the way to the dentist’s office where many families could sign up for financing for braces and other dental procedures for the family. Had the bill not been rushed through so quickly and businesses were not only able to see the specific regulatory changes to their particular industry, but at very least know which financial products were to be regulated, only then could businesses properly prepare for the new regulations. Unfortunately this is not the case, and many business owners are left wondering if they could afford to survive these unknown changes to regulations. For example, with the struggling economy many small furniture retailers are already feeling the crunch as many Americans have tightened down their spending. Many of these retailers offer financing in-house through an outside lender, which can represent well over 50% of total sales. New harsher regulations could make these finance options too expensive to offer, and many retailers would shut their doors across countless industries… industries that have no proven correlation to our economic crisis.
Payday loan industry another industry that may face new and harsh regulations. Already, many States have capped payday loan APR’s at a mere 36%, which seems high compared to other loans, but at 2 weeks for $100 the 36% cap means lenders could only charge $1.38 which is not enough to cover operating costs. And although many States have capped APR’s at a rate that would turn payday lending businesses into “lending charities”, no States have offered subsequent “charity” loan programs to the customers payday lenders had served. In a recent piece attorney Hilary B. Miller examines in-depth why he believe that the payday loan industry will not be regulated out of existence, which is great payday loan news to those in the industry or owning a payday loan business.
Although the future financial landscape remains uncertain for many businesses, those in the payday loan industry remain hopeful. Payday lenders offer small loans to those who can’t get approved anywhere else, and all they need is a job and a bank account. Their customers default more than other traditional borrowers, which is why lenders must charge at least $15 per $100 to stay in business. Also, most complaints against this type of lending could be alleviated with simple regulations, mostly toward rollovers or extensions. And if the past has proven anything, it is that the demand for access to small short-term loans has never decreased which is why payday loans continue to thrive.