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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.
Three states set lower rate caps or longer terms for somewhat less expensive loans.
Online payday lenders are generally subject to the state licensing laws and rate caps of the state where the borrower receives the loan.
Payday lenders, who will soon need to assess borrowers’ ability to pay, are looking to different ways to reach customers seeking short-term loans.
Their future may depend on the use of technology to evaluate borrowers, but it’s a shift not all companies will be able to make.
“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 Loan Business Plan
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.The finance charge ranges from to to borrow 0.For two-week loans, these finance charges result in interest rates from 390 to 780% APR. Rates are higher in states that do not cap the maximum cost.For more information, click on Legal Status of Payday Loans by State.Payday loans are not permitted for active-duty service members and their dependents.“It will be an additional cost to any lender, particularly small businesses that will be required to to comply with rules and regulations,” he said.“It will be the death knell in many ways for small businesses.” Regardless of the push toward technology-driven business models, it’s a direction the industry was already moving in, with the growth of online lenders Elevate and Lend Up taking some of their business.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.“There are so many inherent problems [with payday lending],” said Ken Rees, CEO of Elevate, an online lender that focuses on non-prime borrowers.“What’s going to come of this is the primary forms of credit originated to non-prime customers will move away from payday to longer-term forms of credit that have less negative consequences for consumers.” To Rees, who said some payday lenders have approached Elevate asking whether it can take their customers, consolidation of the payday lending industry is a mostly likely follow-on effect of the new rules.