Millions of Americans Need Payday Loans; New CFPB Rules Would Prevent That
The Consumer Financial Protection Bureau finally issued regulations that affect the payday lending industry. The new rules would require lenders to ensure that borrowers have the ability to repay their loans and limit how many times electronic debits could be presented at banks. Presenting electronic checks multiple times for payment escalates bank service charges, but it’s a common practice of creditors that want to get the money that’s owed to them. Payday lenders have been criticized for making too many attempts to get their money, which causes banking fees to escalate. These rules are aimed at payday lenders, auto title loan companies, deposit-advance lending and other installment lenders who charge high interest rates according to a statement released by ConsumerFinance.gov.
Thousands of politicians and political opponents have united in their criticism of the CFPB and the new regulations that could put up to 84 percent of payday lenders out of business. Although getting trapped in cycles of debt is a common problem, the risks apply to every person who struggles from paycheck-to-paycheck to pay credit card bills, mortgages and auto payments. What the CFPB is really saying to struggling families is that they’re not smart enough to handle their money, so the government is going to prevent people from making their own choices. The CFPB has already drawn criticism for operating beyond what legislators intended when passing Dodd-Frank. There’s strong evidence to believe that the CFPB will next pursue credit card debt with the same vigor as payday loans as shown by the 1,300-page document the bureau produced of proposed changes.
Congress is already addressing one of the CFPB’s excesses–the agency’s decision to publish consumer complaints without verifying those complaints–according to a report from Housingwire.com. The proposed law would require verifying data and publishing it only in aggregated form so that confidential financial information couldn’t be deduced from accounts published on the Consumer Complaint Database.
Even Traditional Lenders Worry About CFPB Regulations and Their Repercussion for Other Lenders
Traditional lenders, which have opposed the payday loan industry, don’t support the latest CFPB regulations because they would stifle their options for providing small-loan alternatives to payday loans. Excited over a possible new income stream, banks are anxious to replace payday lending companies with new financial products, but according to AmericanBanker.com, banks couldn’t offer short-term loans under those restrictions. Banks are also worried that the regulations could be expanded to include credit cards, high-interest investment loans and more traditional lending practices.
Americans Like Their Payday Loans as Evidenced by Banks Trying to Tap the Market
Americans support payday loans in overwhelming percentages among the 10 million Americans who will get them this year. New rules from the CFPB would restrict their access to only about 14 percent of the market according to Forbes.com. People who take out payday loans don’t concern themselves much with interest rates when they’re desperate for cash because they don’t have other resources and aching teeth that need to be pulled. The banks have gauged short-term loan popularity and plan to offer them, but even traditional financing companies can’t make payday-type loans viable with the discriminatory regulations that the CFPB continues to formulate in its effort to abolish an entire industry.
The Federal Reserve doesn’t seem to agree with the wisdom of shutting down an industry for political reasons and feels that competition and free enterprise limit payday lenders’ profit just as they do for every other industry. An FDIC report supports the payday industry’s contentions that payday lenders’ profits are comparable to other lenders and justify their interest rates based on their fixed operating costs, administrative costs and losses due to defaults. Americans need these loans as a legal option for emergencies as evidenced by the following points:
- In states where payday lending is banned, people bounce more checks.
- Citizens suffer from aggressive bill collectors, but payday loans help to consolidate those debts and prevent service interruptions.
- More bankruptcies are declared in states without payday lending.
- Government programs often harm the people whom they’re designed to help.
- Free markets tend to correct inequities and shouldn’t be stifled by bureaucratic regulations.
The Facts Support Leaving the Payday Industry Free to Operate
If superior technology can enable companies to compete with payday loans by offering lower rates, then someone will do so and people can choose from whom to borrow. At present, payday lenders offer the only legal option available to many people to get the cash they need, and CFPB regulations could force borrowers to seek money from organized crime or commit petty larcenies, both of which create bigger problems than a lending industry that’s viable, self-sufficient and popular with its client base. If you want to learn more about opposition to the CFPB and support for the payday lending industry, visit us at the PersonalMoneyStore.com.