The Consumer Financial Protection Bureau, commonly called the CFPB, is a federal agency that was created under the authority of the Dodd-Frank Act. The CFPB 's jurisdiction includes credit unions, debt collectors, banks, securities firms and even payday lenders. Since its inception, the CFPB has been especially critical of lenders offering credit products to subprime borrowers, and the agency 's pending regulations may eliminate installment loans for borrowers with bad credit.
Why the CFPB Regulations Are Likely to Eliminate Installment Loans for Bad Credit Borrowers
An installment loan is simply a loan that is repaid over a period of months or years with each monthly payment being the same amount. Installment loans may be secured by tangible property that the lender may claim if the borrower defaults; mortgages and loans to purchase vehicles are examples of collateralized installment loans.
However, the CFPB regulations are primarily targeting unsecured installment loans for relatively small amounts. With an unsecured loan, the lender has little more than the borrower 's word that payments will be made on time and that the loan will be repaid in full. These are the types of installment loans for bad credit that may soon become unavailable.
Although the CFPB regulations for payday loans have received most of the attention in the media, the proposed rules will have a significant impact on installment loans. Highlights of the new regulations include:
• Requiring lenders to determine whether the borrower has the ability to repay the loan and still cover living expenses and other financial obligations
• Barring lenders from refinancing a loan that would have similar payments unless the borrower can demonstrate that the new loan wo...
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...predict that a variety of other industries may profit if consumers with damaged credit can no longer have access to small-dollar loans. The consumers may be faced with an increased number of re-connect fees from utility companies, more NSF fees from their banks or late-payment fees from their landlords or mortgage companies.
The exact consequences of the CFPB regulations are yet to be seen. In all likelihood, it will be two to three years before accurate studies can be conducted to measure the true impact of the regulations. However, all predictions are that the new rules are going to reduce access to credit for those who already have few options.
Where to Learn More
The proposed CFPB regulations are lengthy and complex. If you would like to learn more about the impact of the new rules or about installment loans for bad credit, visit the Personal Money Store.
damaged credit, the companies are taking a financial risk by financing them. Considering that for
The United States Attorney’s Office Eastern District of Pennsylvania. Predatory Lending. Retrieved October 31, 2011. http://www.justice.gov/usao/pae/Documents/predatorylending.htm
...ancial positions of the borrowers, their lack of knowledge as well as the superior bargaining power of the lender to get the borrowers to agree to these loans. The lenders should bear the major responsibility of these loans, as they are aware of the ramifications of such transactions. The borrowers are also responsible, as they should not enter into contracts without adequately understanding the consequences of such actions. In many cases, the lenders do not provide the information that would assist the borrower in making rational decisions. There are instances when the borrower does not care about the increased penalties, they just want to get their hands on the money, and worry about the consequences later. Some borrowers just live beyond their means but once they get sucked into a predatory loan, they begin a cycle of debt that they just cannot get out of.
Through the use of statistics, expert testimony, appeals to emotions, and a few comparisons, Scurlock tries to convey his message saying that because the lending industry’s main concern is maximizing profits, they have made it impossible to not have a credit card and avoid being taken advantage of. He accomplishes his goal of clearly relaying his argument to the audience with the high amount of credible support he provides.
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The borrowers of the loan must continue to pay their debt for the last 20-25 years.
Schou, Solvej. "Finally, a Law That Would Protect People From Student Loan Hell." Takepart.com. Yahoo News, 12 Feb. 2014. Web. 16 Feb. 2014. .
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