Payday Loan Industry Perspective - What to Expect in the Future?

Payday loans have become a solution for financial problems for many Americans. Hundreds of people use this way of getting extra money on regular basis. As it was reported by the Consumer Financial Protection Bureau, about 20% of the US population have resorted to applying for a payday loan at least once. It is possible to say that the industry is flourishing these days. However, what is the future of payday loan industry?

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Payday Loans on Federal and State Levels

Payday loans may appeara bit tricky, that is why they are not treated favorably by the US government. In order to protect citizens from excessive interest rates, the authorities implement a wide range of restrictions that differ depending on the state law. In 14 states this type of loan is even illegal. As consequence, payday loans can become illegal in more places in the future, unless some changes in their functioning happen.

Improving the System

The Federal Consumer Protection Bureau works on improving the situation. First of all, they try to ban arbitration clauses that do not allow people to participate in a class-action lawsuit to protect their rights. What is more, legal acts that regulate the system of payday loans should be improved. For example, "open-end" credit options require additional control. According to new regulations of 2016, lenders will be required to establish a borrower's ability to repay before extending the loan. In addition, individual loan payments per pay period are limited to a feasible level that would not aggravate the financial situation. Finally, clients are not allowed to reborrow immediately or take more than one loan.

Alternatives Emerging

There is a risk for lenders of short-term loans to be replaced by traditional banks that recently have started offering services similar to payday loans but with the much lower interest rate. Banks including Central Bank, Missouri Bank and United Missouri Bancshares (UMB) Financial Corp. have already elaborated system to provide small loans and financial consultation for people. Another alternative that may appear is suggested by the Inspector General of the United States Post Office. He proposed the idea of allowing post offices to provide non-bank financial services to citizens. This may include small short-term loans.

In order to eliminate negative consequences of payday loans, there are some steps to be taken. The US government works on regulating the usage of payday loans to make them more reliable and safe for clients. Today payday loans fill a financial gap. They help to solve economic problems and a lot of people use them quite regularly because the industry lacks alternatives. It is believed that payday loans have potential and there is space for them to grow and improve the service in the future. Although, as new and new services and companies with better options appear to satisfy needs of clients, payday loans may face the risk of replacement.