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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 AgenciesвЂ™ view. [v] This cycle, named вЂњchurningвЂќ of loans, is characterized by the Agencies as вЂњsimilar toвЂќ the practice of вЂњloan flipping,вЂќ 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 вЂњdetrimental toвЂќ the consumer. Although so called вЂњcooling offвЂќ 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 вЂњeasily preventedвЂќ and вЂњineffectiveвЂќ 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. Failure to take into account adequacy of earnings sources to pay for living that is ordinary along with other financial obligation of such clients prior to making duplicated deposit advance loans presents safety and soundness issues. Included in these are clouding the performance that is true delinquency status for the loan portfolio and heightened standard risk.
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