Regulations For Payday Lenders Could Be On The Horizon
Payday lenders are notorious for getting around the law by simply shifting their business offerings a bit while hanging on to the exorbitant interest rates (upwards of 300 percent in some cases) that keep customers in debt up to their eyeballs for lengthy periods of time. Now the Consumer Financial Protection Bureau is stepping in to draft legislation that could bring these short-term loans under control.
The CFPB, which was formed after the 2008 economic meltdown, is expected to propose federal laws that with rein in loans that are “backed by car titles” and those that go beyond “the traditional two-week payday loan.”
According to The New York Times, payday lending companies have already begun to lobby their elected officials in Washington, Kentucky and New Mexico.
“The lenders contend that if the federal rules are too burdensome, extending loans would become simply too expensive , choking off a form of credit that, while costly, is the only option for millions of Americans,” the paper writes.
In that sense, the payday lenders have a point. The Times cites stats that say the average payday borrower makes only about $22,400 per year and 70 percent are using the money to pay basic expenses. So these are customers who don’t have savings, have very limited income and risk doing without a necessity if they don’t get their hands on money fast.
On the other hand, they’re also the most vulnerable; people who have incredibly limited means and are least able to afford the high interest rate of a payday loan. The median amount of money borrowed is $350 but the amount repaid can far exceed that.
One suggestion are rules that would limit the amount that can be borrowed and for how long. Payday lenders are concerned about what sorts of loans will come under the new regulation. And consumer advocates don’t want new rules to undermine more stringent existing ones.
In case you haven’t seen, watch this clip from John Oliver’s This Week Tonight in which he eviscerates what he calls the straight up predatory lending practices at payday lenders. It’s also a great analysis of how these companies have managed to skirt attempts to regulate them in the past.