A short-term loan is a loan which is usually for up to £1000 that is intended as a quick fix for unforeseen expenses, such as a higher-than-usual electric bill or an unexpected house repair. Consumers then repay the loan when the funds become available in their account which is usually on, or just after, payday.
The new rules
The Consumer Financial Protection Bureau (CFPB) have recently proposed new rules centred around short-term lending to reduce loan default rates and the associated losses for both the consumer and the lender.
The new rules require lenders to determine affordability, and restrict collection to just two attempts with clear warning beforehand.
Lenders must assess borrower’s finances to ensure ability to repay. They are required to:
- Verify income
- Verify major financial obligations
- Check borrowing history
- Make a reasonable determination that sufficient income remains to cover loan costs and estimated living expenses
While these rules may seem somewhat inconvenient for lenders, in the long run they will help you save money and reduce losses while also protecting consumers. With the right technology, you can ensure that you determine affordability and predict the best time to collect payments with little time and effort.
How our technology works with lenders to abide by these new rules benefiting lenders and consumers
PROFILE predicts users’ date of pay to enable you to determine the best time for collections and improve chances that the chosen collection date will be successful. This is particularly important now that lenders are restricted to just two withdrawal attempts.
Determining affordability to ensure ability to repay
Lenders are now required to make a reasonable determination that sufficient income remains to cover loan costs and living expenses, which protects consumers somewhat from getting caught in a repeat borrowing cycle while also reducing loan default rates.
Responsible lending with PROFILE
Through big data and text analytics, our lending solution PROFILE provides lenders with the ability to determine affordability by providing unique and useful consumer insights.
With PROFILE, you can infer whether the consumer is going through a life event or whether they have a particular lifestyle that may influence their financial status and capability to repay, including:
- Whether the consumer has children, pets, or other dependents
- Whether they are going through a major financial event including job loss, a promotion, moving house, etc.
- Indicators of good finances including going on holiday, making new purchases and shopping, a new job or promotion, and more.
PROFILE can help you determine affordability for responsible lending with data provided on:
- Intent to pay
- ID verification
- Fraud detection
- Employment verification
- Mentions of positive events e.g. promotion, new job, holiday, marriage
- Date of pay
To find out more about abiding by the new CFPB rules and how PROFILE can help, get in touch today
MORE LIKE THIS
The new way of banking
Convenience is a priority for consumers whether you want it to be or not. Other things matter of course – like security, compliance, and quality of service – but convenience is not a variable to push aside. Let’s take a look at why… Convenience is all around us The launch of AmazonGo is a very […]
Can you really effectively reduce fraud and provide user convenience?
How do I strike the right balance between convenience and security? The long-contemplated question held by many payment service providers is ‘how do I strike the right balance between convenience and security?’. While I have discussed this in previous blogs, the topic has become even more prominent with new research revealing that consumers want merchants […]
Hello Soda joins TruNarrative
Hello Soda’s advanced data analytics platform will now be available through TruNarrative – a financial crime platform and decision engine used by banks, alternative finance, lenders, and gaming companies The valuable addition of Hello Soda via the TruNarrative App Store will increase the availability of solutions for TruNarrative users all through a single integration. Using […]