Very few people, including the media houses, were betting on the Republican candidate winning the vote. But the election results surprised them all. Donald Trump is now the new president-elect of the United States. Every new president comes in with his own beliefs and policies. So what is he likely to do for the payday loan industry and lending business in general? Let us find out.
Consumer Lending Could See Big Changes
While on the road, Trump had said many times that he is going to cut lending regulation and make it easier for both businesses and the people. This will surely be a big relief for the many payday businesses that offer these short-term loans, and about time too, as many of them have been winding up off late, unable to cope with all the regulations that have been passed in recent times, and the pressures that are often quite unjust.
In the meantime, consumers across the country have been flocking to payday lenders for the quick cash relief they need in an emergency. For instance, last year, people in the state of Alabama took more than 2 million payday loans. It’s an urgent requirement in the Mississippi Delta, and in many other parts of the country as well. So it is clear that there is a need for payday lending and a huge demand for it.
There will be a lot of trouble, even bankruptcies if people cannot get the money they need in a real emergency. There will be loss of income too, if for instance, there is no money to fix the car that has broken down. The person may even lose the job.
Columnists, attorneys, and many others have been speaking out for the need to control, and even reduce regulation, because large sections of the population cannot survive without payday lending. There is simply no alternative. A lot of people are still not in the banking system. Most banks won’t issue such short-term and low amount loans, and also because many applicants have average to poor credit score.
Stocks of Lending Agencies Go Up
The stocks of payday lending businesses and firms that offer such loans, such as OneMain Financial, Enova International, and World Acceptance went up on Wednesday, and on Thursday morning again once the election results made it clear that Donald Trump was becoming the next US President. The market is clearly seeing a cut in regulations to make it easier for these legal businesses to operate.
Investments are pouring into these stocks, a clear sign that these businesses are likely to do better after a Trump win. John Hecht, who is an analyst with Jefferies says, “There is a very clear regulatory relief rally”.
The CFPB’s Wings Are Going to Be Clipped Soon
A lot of people are saying that once Trump moves into the White House, he is going to clip the wings of the Consumer Financial Protection Bureau or the CFPB.
The Bureau was created by the Dodd-Frank Act, after the financial economic meltdown of 2008. CFPB’s mandate was to write rules for credit products such as short-term loans and mortgages. But many things they have done haven’t been liked by a lot of people. So there have been talks of overhauling the Consumer Financial Protection Bureau.
This may finally happen with Trump in the White House. In fact, he has said before that he wants to abolish the Dodd-Frank law, though it is unlikely that the bureau will be eliminated altogether. Some observers feel that his team may instead remove its director Richard Cordray, and get someone whose ideology matches his thinking.
Trump wants a commission of five members to take over from Cordray, once congress approves, of course, which too is with the Republicans, and so may not be too much of a problem. Democrats have opposed this fiercely.
Court Rules in Favor of the President
A panel of judges at federal appeals court ruled recently that the president should be able to “supervise and direct”, and also fire the director. So Trump has the power to do this. But the agency has already said that it wants to appeal this court ruling.
Cordray is expected to fight back, though, and this could mean and expensive and lengthy lawsuit. His term is till July 2018.
How Will This Affect Payday Lending?
With Cordray gone, and new thinking in the Consumer Financial Protection Bureau, life for a payday lender is likely to be easier. But most of the regulations passed by lawmakers in the different states are likely to stay, and most payday lending businesses are OK with this. It’s a legal trade, where most of the businesses are ethical. Most lenders will always comply with the state and federal laws. There are checks and balances in the systems already to ensure this.
A huge majority of consumers pay back in time as well, so there is essentially nothing wrong with the system, like some critics want you to believe.
Payday lenders just don’t want more laws that are going to choke the industry to such a point that the lending agencies have to wind up their operations, which again is not going to help anyone. People in need may end up taking loans from illegal sources that charge way higher interests.
No matter when Cordray goes, one thing is looking very likely post the election results. The Trump presidency is going to curb CFPB’s supervisory, rulemaking, and enforcement powers, which is going to be good news for financial institutions such as payday lending agencies.
Income of Customers May Not Have to Be Verified
Payday loan companies approve short-term cash loans without checking credit scores of their customers. To get a loan, all you have to do is just have a steady source of income, an account in the bank, and be a citizen of the US. There is very little paperwork.
However, the Consumer Financial Protection Bureau has proposed that all payday lenders should verify the income of loan applicants before processing the amount.
Payday lenders have opposed this, because it would beat the very purpose of the loan. Typically, such loans are issued within 48 to 72 hours, which is what the people need, as they are in a financial emergency, and need cash, if possible, today. With this verification, the process is sure to become lengthier. It can go into several days as well.
With the new administration in Washington D.C. and a changed Consumer Financial Protection Bureau, this may not be a necessity any more, thus saving a lot of trouble for both the payday lenders and applicants who want the loan quickly.