What are the Regulatory Policies and Risks Associated with Payday Lending?

Case study

What are the Regulatory Policies and Risks Associated with Payday Lending?

About the Client

The customer wanted a better understanding of the potential of a consumer finance company that provides payday loans in 11 markets in Africa and Latin America.

Executive Summary

There are a few regulatory policies and risks associated with payday lending. One policy is that lenders must be licensed in order to operate. This ensures that lenders are following the law and protects consumers from being taken advantage of. Another policy is that lenders must disclose the cost of the loan and the terms and conditions to the borrower before they agree to the loan. This helps to prevent borrowers from being surprised by hidden fees or being unable to repay the loan.

Goals

  • Looking to learn about the regulatory environment in the target markets. Questions included “What regulatory framework applies and how are regulations enforced?”
  • Insights from Experts informed which areas the team should probe further and which requirements should be applied to borrowers.

Results

  • Was established what regulatory framework applies and how are regulations enforced
  • Was found out which areas the team should probe further and which requirements should be applied to borrowers.

Overview

There are a few regulatory policies and risks associated with payday lending. One policy is that lenders must be licensed in order to operate. This ensures that lenders are following the law and protects consumers from being taken advantage of. Another policy is that lenders must disclose the cost of the loan and the terms and conditions to the borrower before they agree to the loan. This helps to prevent borrowers from being surprised by hidden fees or being unable to repay the loan.

There are also a few risks associated with payday lending. One risk is that borrowers may be unable to repay the loan and end up defaulting. This can lead to late fees, damaged credit, and even legal action. Another risk is that lenders may not be able to collect on the loan if the borrower does not have a bank account or other assets that can be used as collateral. This can lead to the lender losing money and the borrower being stuck with a large debt.

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