The Consumer Financial Protection Bureau Thinks You Deserve Better than a Payday Loan and OppLoans Agrees!
Borrowers deserve a better product and a better experience than payday loans.
On June 2nd, 2016, the Consumer Financial Protection Bureau (CFPB) proposed strong new rules to protect borrowers from payday, title, and other predatory loans designed to keep borrowers trapped in cycles of debt. Among the rules proposed by the CFPB are “ability-to-repay” protections including: full-payment tests to determine if borrowers are actually able to afford their loans, restrictions on successive loans and rollovers, and limiting repeated debit attempts. OppLoans, an online personal lender servicing subprime borrowers, fully agrees with and supports the CFPB’s proposals because we know that borrowers always deserve better than a payday loan. By offering our customers a safe, affordable alternative to high-cost, high-risk payday and title loans, we are helping borrowers escape the payday debt trap.
Who does this protect?
These new rules are designed to keep all borrowers and their families safe from predatory lenders offering financial products like payday and title loans.
In America, we have more payday loan storefronts than McDonald’s or Starbucks locations. Really. And that doesn’t even include all of the online lenders. Payday lending is a major industry that succeeds by offering borrowers short-term loans that are designed to be difficult to repay. Through deceptive advertising and deliberately unfair terms and interest rates, payday lenders profit at the expense of the borrower. (You can read more about payday lending in our Financial Smarts Glossary here.)
What does this mean?
The CFPB’s proposal includes several major actions meant to end payday loan debt traps:
1. Lenders will have to consider and verify a borrower’s income, total debt, and basic living costs before issuing a loan. They will also be required to check the borrower’s credit report.
2. For short-term loans, lenders will have to verify that the borrower can afford their loan while also paying their major financial obligations and living expenses. This includes the 30 days following final repayment.
3. For longer-term installment loans, lenders will have to verify that the borrower can make their loan payments plus living expenses and major financial obligations throughout the loan’s repayment period. For installment loans that come with balloon payments (a large payment due at the end of the loan’s term) this would extend through the next 30 days following final repayment.
4. Lenders will be restricted from issuing a similar loan to a borrower if that borrower seeks to roll their loan over, or seeks a new loan, within 30 days of paying off their most recent loan. In order for the lender to rollover or issue a new loan, the borrower will have to prove to the lender that it would substantially improve their financial situation. This will apply to both short and long-term loans.
5. For longer-term loans, lenders can only refinance the loan if it means substantially smaller payments or a substantial reduction in the total amount owed.
6. After three loans issued within 30 days of the previous loan’s repayment, there will be a mandatory 30-day cooling-off period.
Simply put, these rules mean that predatory lenders can no longer issue loans to borrowers who obviously won’t be able to repay. The full proposal is available here.
Why we agree
At OppLoans, we strongly agree with the CFPB: Borrowers deserve better than a payday loan.
OppLoans is an online lender servicing the underbanked community. Our customers’ credit scores and histories may not always describe them as prime candidates for traditional bank loans, but we’re a deliberately non-traditional financial services firm. We believe in helping the sub or near-prime borrowers who may be used to being denied loans or credit based on their pasts. These customers have been, historically, targeted by payday lenders. Why? Because predatory lenders know that if a prospective borrower can’t secure a higher credit limit or loan from a traditional bank, they’ll be more likely to accept a payday lender’s unfair rates and terms.
With limited options, these borrowers have been forced into payday loans’ exorbitant interest rates, short terms, and debt-trap designs.
OppLoans offers these borrowers a safe alternative. Unlike payday loans, our personal installment loans come in higher amounts ($1,000—$10,000) for longer terms (up to 36 months). We report payments to credit bureaus to improve customers’ credit scores over time and we never charge pre-payment penalties. Our goal is to evolve the subprime into near-prime or even prime, saving the borrowers’ money and offering them a flat-out better product.
We provide borrowers with a better loan option and our customers agree. We’re proud of our overwhelmingly positive reviews. In fact, our customers rate us an average of 5/5 stars on Google!
OppLoans stands firmly behind the CFPB’s call for stricter regulations on predatory lenders. This proposal will help protect consumers while allowing space for financial innovation to occur. We agree with the CFPB’s efforts to protect consumers from an industry that continues to have a detrimental impact on underbanked Americans. Debt doesn’t only affect the borrower negatively—it restricts their ability to participate in the local economy, causes stress within families, and decreases social mobility.
If you’re struggling financially, or know someone who is, we strongly encourage you to avoid a payday loan. There are better, safer, and more dignified options out there. In the coming months, OppLoans will be rolling out new tools, resources, and products designed to advance our anti-payday mission. We support the CFPB’s call to end the debt traps associated with payday lending and we’ll continue doing everything we can to make better financial tools and products available to anyone who needs them.