Changes brought in the debt market environments by the government have had a mixed response in the consumer creditors and are numerous. Few of these binding and legally obligatory changes such as the rate ceiling restrictions has provided the creditors with a greater scope to offer credits at a much lower rate than they could have done otherwise or before.

However, there is a chance of lost revenues in this approach. To compensate with this risk, the creditors follow several practices that are well within the debt law but have a serious effect on the borrowing power of the consumers. A few of such practices followed by the creditors are:

• They tend to raise the cost of the loan by raising the charges or increasing the non-rate fees
• In order to make sure that they face fewer credit risks they also engage in greater credit screening.
• They also ask for larger credit insurance if it is profitable for their business when they grant a loan.
• They also tend to offer credit at much more restrictive terms to keep their money protected.

Apart from that they also increase the down payment requirements, downsize the loan amount, or ask for a greater collateral or security for a debt.

All this will have a serious effect in the demand for a loan and accessibility of it to the consumers which is also another concern of the creditors. To ensure that the demand is not affected adversely, they reduce the credit costs by offering larger size loans. This is done especially where the overhead cost for the process of loan origination can be spread more thinly compared to each dollar of debt extended to the consumers.

Therefore, when you want to take on a debt and do not know much about the current debt laws, you are advised to so some research and know about these rates and practices followed by the creditors. Visit site like Nationaldebtreliefprograms.com and others to be more knowledgeable and confident before you apply for any loan.

Effects in creditors’ behavior

The changes in the debt laws have also had some significant effect on the behavior of the creditors as well in a number of ways. Such changes in their behavior are the result of the difficulties that these changes in the law have imposed on them when it comes to collecting their dues from the delinquent or defaulted debt holders.

They feel that the cost of collection as well as the possibilities of loan losses will both rise due to such changes brought in by the government. As a result, to minimize the effects of these mandatory restrictions, the creditors follow several practices such as:

• Adjusting the loan rates at a higher side
• Raising all fees and charges applicable to a loan
• Asking for higher credit insurance premium
• Requiring a clear and more profitable collateral
• Restricting the availability of credit to the high risk customers
• Making proper investigation and rigorous background checks on the customers prior to granting a loan
• Scrutinizing more carefully and ensuring greater credit checks for precise and proper evaluations on the potentially high risk customers
• Limiting credit maturities
• Requiring co-signers more frequently to reduce credit risks and
• Taking all other possible and legal steps to reduce their risk exposure.

Though the credit and creditors’ policies may vary from one state to another but it is found after analyzing the differences in creditors’ policies among states that the primary intent of all is to reduce risk and secure their money by ensuring proper and on time repayments.

This is true for all commercial banks, all loan and savings associations, all finance companies as well as all credit unions that participate in the local credit market.

The mixed response

All industry representatives showed a difference in response to these changes in the debt laws. Such differences are more profound particularly for those finance companies that are affiliates of large organizations. It is also seen among the credit unions that follow unsophisticated procedures for internal accounting.

However, there was a consistent pattern seen to be existing in the behavior of the creditors of those states that had different credit laws and the creditors operated in different regulatory setting of the market.

The effects also depended on several other factors such as:

• The size of the institution
• The type of creditor
• The loan rates and terms
• The security requirements
• The risk involved and the avoidance procedures
• The legal environment of operation and much more.

All these factors and the change in the structure of the credit markets most importantly indicated that the creditors are now more interested in offering more indirect credit. These are the debts in which the prices of the goods sold on credit, the terms and purchase prices of the credit contract can be adjusted. This provided the lenders with an opportunity to get a sufficient rate of return that can easily compensate the fact that their interest earnings may be reduced.

Such changes also showed a significant shift in the lending policies of the banks and finance companies to offer more indirect rather than direct loans at a more restrictive rate.

Importance of such regulations

Due to the specific regulations in the debt laws, the financial institutions have adapted to much stricter usury rate ceiling in a much better way that will ensure that they still earn a high return on their consumer lending undertakings. As a result, credit is now more readily available to both the high risk as well as low risk customers.

The change in the law has also suggested that there is no significant systematic difference existed in credit rejections since all rates are now uniform.

In short, the changes in the debt laws provided the regulators and legislators with valuable insights to incorporate these changes in their business policies. This in turn has served the purpose of both the creditors as well as the consumers irrespective of the fact that the debt is a high risk or a low risk one.