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“For the brick-and-mortar [payday lenders], the challenge they’re going to face is requirements for real underwriting and sophisticated analytics that the payday lender is not used to,” he said.Payday loans are short-term cash loans based on the borrower's personal check held for future deposit or on electronic access to the borrower's bank account.
High cost payday lending is authorized by state laws or regulations in thirty-two states.
Fifteen states and the District of Columbia protect their borrowers from high-cost payday lending with reasonable small loan rate caps or other prohibitions.
Since loans are made based on the lender’s ability to collect, not the borrower’s ability to repay while meeting other financial obligations, payday loans create a debt trap. CFPB found that more than half of all online payday instalment loan sequences default.
CFPB found that 80 percent of payday borrowers tracked over ten months rolled over or reborrowed loans within 30 days. Payday loans are made by payday loan stores, or at stores that sell other financial services, such as check cashing, title loans, rent-to-own and pawn, depending on state licensing requirements. CFPB found 15,766 payday loan stores operating in 2015.
All a consumer needs to get a payday loan is an open bank account in relatively good standing, a steady source of income, and identification.
Lenders do not conduct a full credit check or ask questions to determine if a borrower can afford to repay the loan.
Borrowers write a personal check for the amount borrowed plus the finance charge and receive cash.
In some cases, borrowers sign over electronic access to their bank accounts to receive and repay payday loans.
Jamie Fulmer, svp of public affairs at Advance America, one of the largest payday lenders in the U.
S., said smaller companies may find it more difficult to adapt.