Online Direct Lenders and Online Payday Loans
Direct Payday Loans from Online Lenders
Several companies have started to offer payday loans all over the world. However, there are also plenty of criticisms surrounding payday loans.
Many critics say that short-term loans like payday loans are disadvantageous to consumers. Payday loans are touted as very expensive short-term loans.
There are many misconceptions about payday loans and we will tackle theme here.
Direct Payday Lenders’ Negative Reputation
The biggest critics of the payday lending industry are the traditional financial institutions and organizations. But are direct lenders unscrupulous and predatory?
Traditional banking and lending firms insist that payday lenders are predatory and do not provide real value to consumers. This “reputation” does not apply to all payday loan providers.
Be Cautious When Dealing With Direct Payday Loan Providers
Payday loan providers offer loan products that are short-term and unsecured. However, these loan products also have high-interest rates and fees – especially the ones designed for borrowers with bad credit.
Payday loans are also called payday advances and, sometimes, deposit advance loans. There are other terms used to refer to payday loans such as fast cash, instant cash, guaranteed payday loans.
Customers apply for payday advances to use for a variety of reasons, particularly to tide them over until the next payday. Payday loans are very accessible to people with different credit circumstances.
The borrower is required to pay the loan back on the following payday – thus earning the name “payday loan”. The lender will want to know whether a borrower has a source of income from employment.
Where Can I Find Direct Lenders?
Traditionally, lenders have offices that you need to visit when you want to apply for a loan. A new breed of lenders, however, have started to operate their businesses online. Loan applicants can simply submit their loan request through the lender’s website.
How Does An Online Payday Lender Operate?
Some online payday loan providers operate 100% online while some have fully-functional websites and brick-and-mortar offices at the same time.
Here’s what happens when you take out an online payday loan:
- You go online and submit a loan application form to your preferred lender
- The lender verifies the information you submit and offers you a loan deal
- After accepting the loan offer, the lender electronically transfers the funds to your bank account
- You will provide authorization for repayments once you are granted the credit
Remember to read the terms and conditions of the loan thoroughly before accepting the offer. The contract is legally binding so failure to pay means the lender can take legal action, if necessary.
Direct Lenders Are Authorized to Operate?
The payday lending industry is being regulated by the government to ensure the safety and protection of consumers. Many rogue payday loan providers prey on desperate and needy borrowers. Government agencies are working to regulate payday lending industry practices.
Can Direct Lenders Be Banned From Offering Payday Loans?
Some states do not allow payday lenders to operate. States that allow payday lenders to offer their loan products have to comply with strict requirements regarding loan amounts, maximum fees, caps on interest rates, and other restrictions. Payday lenders must be licensed at the state level.
How Are Consumers Protected?
Federal regulations implement the Dodd-Frank Act to authorize the Consumer Financial Protection Bureau to protect consumers against the abusive practices of unscrupulous payday loan providers. Not all online payday lenders are licensed to operate and offer their loan products to consumers.
Reputation is Very Important When Looking for an Online Payday Lender
Banks must ensure that the payday lender they are working with is reputable.
Banks should be careful in dealing with payday lenders, too. Their business relationship with a trustworthy payday lender speaks volumes of the reputation as well. The image of the bank can be severely damaged even if they are not directly involved with the illegal activities of their partner payday loan provider.
The financial institution must determine whether the payday lender providing the funds of online payday loans is complying with their risk management model. Payday lenders should ensure that they are following all regulations and laws applicable to them.
One way for the bank to determine if the payday lender is compliant to the institution’s risk management model is by generating regular ACH reports of the payday lender to the relevant department. The bank should protect their reputation since their affiliation with an unscrupulous payday loan provider will also affect their business.
Know Your Customer (KYC)
The bank must know its clients (payday lenders) and their activities.
If the bank is working with a payday loan provider, they must develop and implement due diligence standards and procedures.
ACH (automated clearing house) has rules and guidelines indicating that the bank must follow such as the KYC or “Know Your Customer” procedures.
How Do Regulators Monitor Online Payday Lenders?
Government agencies have specific procedures in monitoring and checking the nature and activities of the online payday lender. They must set the appropriate restrictions with regards to the return and origination activities of payday lenders.
The due diligence involves identifying the lender’s nature of the business, as well as the owners or operators of the lending firm.
The Better Business Bureau (BBB) is an agency that monitors consumer complaints. The BBB and other consumer complaint agencies help determine if the business, in this case, a payday lending firm, has been subjected to legal actions or cases.
The BBB and other consumer complaint sites are also responsible for reviewing the online platform of the lender, the terms and conditions of loan products offered, and the promotional materials distributed by the lending firm to the public. Due diligence practices are not only applicable to online payday lenders but all businesses and merchants.
To protect their reputation, banks should be cautious in offering their services to online payday lenders and other high-risk originators.
Banks must be careful when dealing with new customers like payday lenders especially where risk-based due diligence is concerned. The process does not end with knowing the payday lenders using their services since they should regularly monitor these high-risk customers. Doing so will help identify problems at an early stage, as well as handle issues and concerns in a timely manner.
Online Payday Lenders Offer Convenience
The payday lending industry is growing. The demand for payday loans increases continuously as consumers experience short-term financial challenges. Payday loans, when used appropriately, can benefit the borrower immensely. Aside from providing immediate relief from financial constraints, a payday loan can help improve one’s credit rating by paying dues on time. Payday loans are financial tools that can make or break someone’s credit reputation.