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Online Personal Loans In the Global Economy

[Jan 4, 2010.]


Here is the full text of H.R. 3126: Consumer Financial Protection Agency Act of 2009.

Here is a summary of the legislation: It is now going to be much more difficult--and dangerous--for lenders operating in the United States to make "predatory" loans. Lenders who are seen by the newly-created Consumer Financial Protection Agency as taking advantage of consumer borrowers may face fines of up to $1 million per infraction.

Although it is distinctly unclear how strictly the Consumer Financial Protection Agency plans to enforce this fuzzy law, some bad cred personal loans could certainly be considered predatory because lenders charge high interest rates to borrowers who have a history of not paying back loans.

At the very least, bad credit personal lenders operating under the jurisdiction of the U.S. courts would have to think twice before making bad credit personal loans.

This raises the question: what about lenders operating outside the U.S.?

Online Personal Loans Go Global

With the advent of social lending websites like Prosper.com and LendingClub.com, there has already been some "decentralization" of personal loans. It is logical to expect this trend to continue.

In China, this has already happened. Chinese workers are famous for saving a good portion of their wages--15 percent or more--and thus they are always looking for a way to get some return on those swollen savings accounts. In other words, China has money to lend...and lots of it.

For years, Chinese savers have been plowing money into U.S. government debt with reckless abandon, with Chinese investments in Treasury bonds now approaching $1 trillion according to estimates.

However, Chinese savers are not happy with the behavior of the U.S. government as far as spending. Chinese economic officials have made several harsh public statements about concerns that the U.S. government itself is becoming a bad credit borrower.

In this environment, Chinese savers--and the bankers who manage their money--are looking for a better return on their savings dollars. Making online personal loans has become one avenue to gain a better return. Personal lending in China has more than doubled versus last year.

So rapid has this rise been that China recently revised its own personal loan requirement laws.

Does Legislation Kill Personal Lending? That Remains to Be Seen

It is obviously very difficult to regulate online personal loans. However, that does not mean that nations will not try to do it. They will.

It could be extremely interesting to see how legislation adopted by various countries affects online personal loans. What seems assured, though, in the meantime, is that online personal lenders will move to whatever country they need to move to in order to make personal loans that make money.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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