Proposed Changes to Payday and Short-Term Lending Could Lead to More Verification Requests
You may have seen the CFPB’s proposed rule announced in June that would require payday lenders, and companies that make vehicle title and other high-cost installment loans to determine whether borrowers can afford to pay back their loans. The proposed rule is designed to help consumers who rely on these types of easy-access, short term, high-cost loans from being overburdened with debt, including the additional costly debt of higher interest, penalty fees and even potential seizure of their automobile. Should this proposed rule pass, this will require the lending industry to make changes to the frequency at which borrowers could take out these types of high-cost loans.
The regulators feel that these proposed changes will protect the consumer, and the increased regulation could lead to an increased need for lenders to verify employment and income to ensure the consumer meets the ability to repay the loan. This could result in an increased demand for verification requests to the employers of those borrowers seeking the loans. Employers using The Work Number® automated income and employment verification service from Equifax may greatly benefit through the qualification process of payday and other short-term lending programs. The automated service maintains compliance with the federal Fair Credit Reporting Act (FCRA), while helping to improve internal efficiency, consistency, and security of the verification process.
Short–term lenders may also benefit from using this instant income and employment solution to help minimize the administrative costs of direct contact to employers to secure needed information. In fact, many short-term lenders are already using the best practice of verifying applicant employment and income to qualify loans through The Work Number service from Equifax. In 2015, nearly one half-million employment and income verifications were completed for this type of lender alone, ultimately resulting in quicker lending decisions, based on real-time, accurate data.
The period for public comments on the proposed rule closes on October 7, 2016.
The Bottom Line
The need for income and employment verifications continues to increase based on lenders looking to make better-informed decisions in the ever-changing financial landscape of consumer protection and regulatory requirements. Employees are also encountering more life events and financial choices requiring verification of income and employment as part of the application, qualification and decision process. Employers that focus on secure, compliant and efficient verification processes not only protect themselves from potential litigation risk, but also provide a significant benefit to their employees, enabling their access to new employment, credit, and other benefits they may need.
To learn more about how Equifax Workforce Solutions can help you manage your income and employment verifications, please contact Pete Krieshok at 314.214.7325 or firstname.lastname@example.org
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