The combination of a high cost product and short repayment period creates in the Agencies’ view

The combination of a high cost product and short repayment period creates in the Agencies’ view

Protection and Soundness Factors

The combination of a high cost product and short repayment period creates a risk of some customers becoming trapped in a cycle of high cost borrowing over an extended period of time in the Agencies’ view. [v] This cycle, named “churning” of loans, is characterized by the Agencies as “similar to” the practice of “loan flipping,” which they usually have formerly defined as a feature of predatory financing. [vi] The Agencies suggest that the look among these services and products usually results in such consumer behavior and it is “detrimental to” the consumer. Although so called “cooling off” durations, this is certainly, minimal times imposed between deposit advances, have now been instituted by some banking institutions, the Agencies find the present types of such plans become “easily prevented” and “ineffective” in preventing duplicated usage.

The Agencies keep in mind that because clients using DAP usually have income problems or blemished credit records, such loans provide a heightened credit danger to lending banks. Continue reading “The combination of a high cost product and short repayment period creates in the Agencies’ view”