In June, federal regulators issued sweeping new rules that would drastically alter the payday and title lending industries. Under the proposed rule from the Consumer Financial Protection Bureau (CFPB), short-term lenders would have to verify borrowers’ ability to promptly repay loans, and be prevented from repeatedly issuing loans to the same consumers. The rule is currently pending a public comment period, which runs through Sept. 14. After that time, the CFPB is expected to issue its final rule.
In the meantime, payday and title lenders continue to try to avoid regulations in order to gouge the poor by trapping them into a cycle of debt. They sell “easy” loans that are tied to astronomically high interest rates, with no regard for whether or not the borrowers have the ability to pay the loan back. In fact, the system is designed to push borrowers from one loan to the next, borrowing again and again to pay off previous loans, which of course they are unlikely to do.
Campaign for America’s Future (CAF), which is working to help stop payday lenders, recently shared some statistics from Americans for Payday Lending Reform (a project of People’s Action). These are just a few of those facts:
• Thirty-five states allow payday lending with an average of 300 percent APR or more on a two-week loan. [Philadelphia Inquirer, 6/23/13]
• CFPB: 80 percent of payday loans are rolled over into new loans within 14 days. [Yahoo Finance, 8/13/14]
• CFPB: 60 percent of payday loans are renewed seven or more times in a row, typically adding a 15 percent fee for every renewal. [Times Picayune, 5/8/14]
• CFPB: half of all borrowers took out at least 10 sequential loans. [Cleveland Plain Dealer, 6/13/14]
• Only 15 percent of borrowers were able to repay their initial loans without borrowing again within two weeks. [Cleveland Plain Dealer, 3/26/14]
While the rules proposed by the CFPB are a good start, the only true way to stop payday and title lenders from taking advantage of the poor is to require them to only loan to borrowers who can afford to repay their debt. According to CAF:
A single unaffordable payday loan is one loan too many. The proposed rule gives a “free pass” to payday lenders to make six bad loans, allowing lenders to sink people into a dangerous debt trap before the rule kicks in. The CFPB was right to base their proposal on the standard that borrowers should be able to repay their loan, but that standard must be on every loan, from the first loan. The CFPB should also enact protections to prevent lenders from stringing people along by ensuring a 60-day break between loans and limiting ‘short term’ loans to 90 total days of indebtedness per year.
As I have stated on numerous occasions, I am no fan of predatory lenders. How can you help? Before the public comment period ends, you can let the CFPB know that they must make their rules even stronger. CAF has a simple online form that will allow you to submit your comments. Visit www.stoppaydaypredators.org/CAF.
Sources: Bloomberg News, CAF
Contact us today for a free legal consultation with an experienced attorney.
Fields marked *may be required for submission.
If you would like to subscribe to the Jere Beasley Report digital edition, simply visit our Subscriptions page and provide the necessary information or call us at 800-898-2034.
Attorney Advertising - Prior results do not guarantee a similar outcome.