With a new rule that was five years in the making the Consumer Financial Protection Bureau (CFPB) is coming down hard on the payday loan industry. CFPB Director Richard Cordray frequently refers to payday loans as “payday debt traps.” He believes that payday loans, as they are currently handled, are dangerous to low-income consumers who often become dependent on them. This is why the CFPB wants heavier regulation in the payday loan industry.
Many consumer advocates support the new rule. However, some lawmakers think that limiting access to payday loans will force cash-strapped consumers into even riskier alternatives. Payday loans are already illegal in several states, but not Michigan. In the Mitten State, payday loans are capped at $600, and they are quite popular among consumers with low credit scores. Therefore, if the CFPB rule sticks, it will affect a large number of Michigan consumers – for better or worse.
How the CFPB Rule May Change the Payday Loan Industry in Michigan
In creating the new rule, the CFPB’s goal was “to break a cycle of new debt to pay back old debt.” While researching the payday loan industry, the CFPB discovered that about 70% of borrowers take out a second loan within 30 days. This was indication to the bureau that many payday loan borrowers in Michigan and other states cannot afford these loans. This is why they consistently take out new loans to pay for the old ones and land in the payday loan debt cycle.
To combat this potential cycle in Michigan and elsewhere, the new CFPB rule requires a “full-payment test.” Payday lenders must perform this test with most potential borrowers to verify their ability to make loan payments. Also, the rule would make it illegal for payday lenders to sell more than three loans in quick succession to any one Michigan consumer.
The new rule would permit Michigan consumers to take out payday loans of $500 or less without passing the “full-payment test.” Yet, this would only apply if the lender offers a gradual payment option with the loan. Historically, payday lenders draft the entire loan amount (plus interest and fees) from the consumer’s bank account on payday. Under the CFPB rule, though, the borrower would have the option to make several, smaller payments.
If the CFPB rule takes effect, Michigan consumers who want to take out $600 payday loans would have to pass the “full-payment test.” Then, if they couldn’t show proof of a qualifying income, they would get denied. Typically, payday loans are a last resort for Michigan residents who need fast cash. So, if denied access to this type of borrowing, where would they go?
Payday Loan Alternatives for Michigan Consumers with Low Credit Scores
Lawmakers who oppose the CFPB rule argue that desperate consumers will seek out pawn shops, off-shore lenders, or even loan sharks if denied access to payday loans. However, the CFPB pushes back by citing research conducted in states where payday loans are completely illegal. In these states, the CFPB argues, banks and credit unions offer more small dollar loan options to consumers with lower credit scores.
Hopefully, if the CFPB rule survives, banks and credit unions will offer similar products in Michigan. These loans come with lower interest rates and fees than payday loans. In addition, when consumers borrower from these institutions, they can improve their credit scores during the repayment process. Then, by improving their credit with timely payments, Michigan consumers can expand their future loan options.
Other Ways for Michigan Consumers with Low Credit Scores to Get Better Credit
Budgeting, using credit cards responsibly, and getting current with bills are all ways for Michigan consumers to repair bad credit. Another important part of the credit repair process involves regularly checking your credit reports. Unfortunately, about 80% of Michigan credit reports are flawed in some way. These errors occur when creditors and the credit bureaus mishandle consumer information. And some of these inaccuracies bring down credit scores.
Luckily, it’s easy to check your credit reports. The Fair and Accurate Credit Transactions Act (FACTA) entitles Michigan consumers to free copies of their credit reports from each of the major credit bureaus. Every twelve months, consumers can visit www.annualcreditreport.com, and request credit reports from TransUnion, Equifax, and Experian.
Then, while looking over your credit reports, you find credit score damaging errors, call Credit Repair Lawyers of America in Michigan. When you contact the credit pros at our firm, an experienced credit attorney will fix your credit reports – for FREE.
The Free and Legal way to Get Better Credit
Don’t let errors on your credit reports bring your credit score down. At Credit Repair Lawyers of America in Michigan, we’ve been cleaning up credit reports for consumers since 2008 for free. How do we do it? All of our fees come from the defendants in cases that are settled. This is why our clients pay nothing for the work we do.
Let’s start the conversation about what we can do for your credit. Set up your free consultation today by calling Attorney Gary Nitzkin at (248) 353-2882 or contact us on our contact page.
For more information about Free Credit Repair, please visit https://creditrepairlawyersam.com/michigan/credit-repair/.