As payday lending continues to attract hundreds of consumers around the world, the question on ethics has become a big issue. Apparently, there are lenders that provide bad credit loans even to the unemployed. So to renew the consumers’ trust on nontraditional lenders, a group of web-based loan providers thought of coming up with a set of guidelines for ethical payday lending.
Under the set guidelines, borrowers are no longer given new loans as soon as the old loan expires without due consent. This prevents rollovers that are major contributors to borrowers not being able to pay the money back. Further, the maximum number of bad credit loans that can be taken out is now limited to three; and that’s for three consecutive months. Once the maximum has been exhausted, the borrower will be placed in a single loan that will last for six months.
The head of the lenders organization for ethical lending says that borrowers should not be put in situations wherein payment becomes very difficult because of the loading of fees. Also, reminders to bad debtors should only be limited to weekly reminders at home instead of hassling them at work.
Of course, the size of the loan will vary. Small loans are meant for short-term contracts while the bigger ones are good for the six-month term. But the availability of any of these loans will still be subject to the validity of the requirements submitted. This leads to the second rule on payday lending.
On Stricter Data Collection
Payday lenders should also be stricter when it comes to data collection. The requirements should be strictly upheld; such that bad credit loans will only be provided to applicants that have shown proof of employment.
Moreover, the proof of employment should be good for at least three months prior to the application for bad credit loans.
Since most of the criticisms on payday loans can be traced back to records on young debtors, loan firms should educate their borrowers of their obligations to pay the bad credit loans back. Borrowers must also be informed of all fees and interest rates involved; thereby eliminating the possibility of hidden costs.
Lenders Must Submit To Credit Reference Agencies
The most difficult-to-do recommendation coming from national banks is for bad credit loan providers to submit details on new loans to credit reference agencies. This is following reports on borrowers slipping into serious debts without staining their credit record. While this may be a good factor when viewed individually, it puts a lot of questions on the validity of credit reports as a means to gauging the creditworthiness of a person.
A new trend in the payday loan industry is called the recycling lending. This is a lend-with-care scheme wherein a lender will only finance three to five borrowers at once. Target individuals of this loan type would be entrepreneurs from all over the world.
Once the loans have been repaid, the money will be used to fund the monetary requirements of another entrepreneur. The cycle continues until the maximum loan amount increases.
It is possible to experience an ethical payday loan. As more criticisms are heard, those involved in the payday lending industry will also need to think harder on how to make bad credit loans more convenient to borrowers.