It is important to deal with responsible lenders of payday installment loans because there have been suspicions lending practices by some lenders. Predatory lending is a harmful practice that is designed to take advantage of a consumer’s inexperience or lack of sophistication. Most lenders who are into this try to manipulate a borrower into paying more for their payday installment loan than they need to.
Predatory lending practices results in a lot of devastating and costly consequences to many consumers. Consumers are asked to pay excessive fees and high interest rates that maybe even more than the amount they borrowed. As a result, many end up making payment defaults and, worse, end up in more debt than what they first borrowed.
In an effort to curb this practice, consumer groups are calling on financial institutions to follow the set Principles for Responsible Lending. This is to both end predatory practices and to provide credit in a fair manner, free of discrimination and harm. The Principles for Responsible Lending include the following:
Targeting and outreach: Payday installment loan lenders will not target minorities or the elderly for loan products that are priced higher than the products for the general population.
Loan fees: No payday installment loans will be charged with upfront charges greater than five percent of the loan amount.
Rates: Interest rates are set by a nondiscriminatory, consistent and rational method in which price relates to actual risk.
Prepayment: No prepayment penalty will be offered on sub-prime products that are not offered on prime credit products.
Steering: Lenders will not provide employee or third party incentives to steer minority, elderly, or low-wealth borrowers to loans that have higher fees or interest rates than the borrower’s credit history warrants.
Credit insurance and loan packing: Credit insurance and other loan extras, if offered at all, will be paid for on a monthly basis by the borrower and not added to the initial loan amount.
Flipping: No repeated refinancing where the cost of the loan in fees and rates may bring harm rather than help the borrower.
Credit reporting: Payday installment loan lenders will make a commitment to accurately report to credit bureaus the payment records of borrowers so that favorable refinancing can be a viable option for them.
Predatory lending involves a variety of lending practices that may be disadvantageous to borrowers. Predatory lending usually involves fraud or deception, that manipulates borrowers through aggressive sales strategies by taking unfair advantage of a borrower’s lack of understanding about payday installment loan terms. These practices are known to target lower income and minority borrowers.
The Principles for Responsible Lending can be a great opportunity to stop predatory lending practices of payday installment loans. Responsible lenders, there are many, must support this goal to uphold lending practices and to protect consumers from harm.