Before the 2008 financial crisis that imploded the housing industry and dropped stocks to the floor, predatory lenders were common. Easy credit and low interest rates brought many consumers into banks to apply for home and student loans, along with multiple credit cards. However, the legal contracts they signed were often full of difficult wording and loopholes that only benefited the lender. The Consumer Financial Protection Bureau, or CFPB, stepped in to help borrowers in 2013 with the "Know Before You Owe" act. This law lays out basic information that must be disclosed when a borrower works with a lender.
Student Loan Clarification
When you first enter college, paying back student loans doesn’t seem pressing. Many students simply signed on the dotted line for any loan amount and type. When the loan became due, students were met with huge interest rates and unreasonable payment structures. However, they technically agreed to the loan stipulations. "Know Before You Owe" gives clear instructions on the loan paperwork so students know what they are truly agreeing to. With better understanding, they can find the right loan for their needs.
Mortgage Financing
Your mortgage will be one of the largest financial commitments you ever make. With closing paperwork nearly 2 inches thick, many borrowers simply sign everything without reading a word. The "Know Before You Owe" program gives the borrower a clear summary of all the financial commitments explained in the paperwork. If there are issues with the summary, each item can be analyzed in the full document. This eliminates monthly bill surprises.
Credit Card Debt
The small print for credit cards makes this financial commitment a nightmare if payments are late or nonexistent. "Know Before You Owe" allows the consumer to see all the pertinent information in one understandable summary. Information about interest rates, limits, and payment structures is mandatory. There cannot be any confusing wording to trick the consumer into a higher interest rate. With full knowledge about the card's stipulations, consumers can find the right credit card for their needs.
The Big Picture
When borrowers understand their rights and commitments, they are more likely to pay the loan or credit card payment each month without fail. With the exception of extreme circumstances, bankruptcies decline with smart borrowing and budgeting. When more people are in a healthy financial state, the local and national economy benefits from consumer spending and innovation. "Know Before You Owe" contributes to a healthy nation to keep interest rates competitive and products affordable for everyday purchases.
By making lending paperwork universally understandable, consumers have a better idea of their responsibility after they sign the agreement. Confusion over balloon payments, interest rates, and payment schedules is virtually nonexistent with the new law set forth by "Know Before You Owe." A new era of responsible lending and payback helps the entire economy remain healthy.
