Killing Payday Lending By Diktat – the CFPB has Really Gone to Far
Killing Payday Lending By Diktat – The CFPB Has Really Gone Too Far
Proposed regulations by the Consumer Financial Protection Bureau, or CFPB, could prevent the payday loan industry from doing business. Instead of establishing rules that allow short-term loan companies to continue operating, the CFPB is going for the kill shot. Essentially, the agency is killing payday lending by diktat, and by doing so, the CFPB has really gone too far.
Killing Payday Lending by Diktat – The CFPB has Really Gone too Far
Forbes confirms that the CFPB’s regulations are designed to kill the payday lending industry by destroying its economics. Richard Cordray, the director of the CFPB, said, “The very economics of the payday lending business model depend on a substantial percentage of borrowers being unable to repay the loan and borrowing again and again at high interest rates.”
A business’s economics are what makes it successful, so if the CFPB accomplishes its goal of destroying the payday loan industry’s economics, it will eradicate the industry. Because the regulations prevent the practice of relending and do so with little support from those who are actually borrowing the funds, the agency is using its legislative power to kill the industry through diktat.
Why Do People Take Out Payday Loans?
People take out payday loans because to them, these types of loans offer value. By enacting regulation against the payday loan industry, the CFPB is using its power to prevent people from doing what they want to do. It is taking this step despite the fact that these borrowers are not negatively impacting others.
Because the agency’s guidelines do not require congressional or any other kind of approval, the regulations could be in place as early as next year. When they do go into effect, some 12 million Americans will find it tough to get the money that they need to get by.
Americans are Using Credit for Repeat Expenses
Slate reports that the most common payday loan borrower is a low to middle class citizen instead of those who are very poor. In addition, many of the industry’s borrowers confirm that they use short-term loans to cover repeat expenses like rent and food instead of for emergencies. Payday loan lending can be predatory, but there is a definite demand for additional funds. In modern-day America, many people need credit to make ends meet.
According to some financial experts, it would be better for borrowers to lose access to payday loans instead of taking on the debt and outrageous interest rates that come with them. If these experts get their way, they could condemn those who need a little more money each month to a life of poverty. While many short-term loan borrowers claim that they would decrease their expenses, contact a family member or request a loan from a bank or a credit union if payday loans weren’t available, they would surely be using these options now if they could.
Is There a Way to Lift Payday Loan Customers into Economic Security?
ThinkProgress reports that when millions of people rely on loans to cover their living expenses, the situation is less than ideal. Major changes that would lift these people into economic security would require a big federal policy shift toward wealth redistribution or idealistic strategies like establishing a universal basic income.
The political will to enact this level of change doesn’t exist. There isn’t even enough political will to create moderate alternatives like nonprofit financial organizations or postal banking. Because the political motivation to make real change is lacking, people will continue to need access to the types of loans that payday lenders offer. If the CFPB intends to get rid of short-term lenders, it must come up with an alternate lending option for the industry’s borrowers. Without this step, the CFPB is just going to wind up hurting the people that it says it wants to help.
Predicting the Future of the Short-Term Loan Industry
If the CFPB manages to kill the payday loan industry by diktat, many families will be on shaky financial ground. Those who borrow to get by from one month to the next will be hard-pressed to find another borrowing option that provides this service. It’s important to keep in mind that the payday loan industry tends to be a dexterous one. These lenders may transition into new ways to lend or shift their main operations to locales that let them continue to operate. To read more about the CFPB’s intentions to destroy a financial industry, visit the PersonalMoneyStore.com.