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The Consumer Financial Protection Bureau faces a tough balancing act as it seeks to issues a proposal to rein in high-cost payday loans. A chief concern is what will replace payday lenders if federal regulations force many of them to shut down.
March 21 -
The agency has struggled with how to regulate small-dollar and payday loans in recent years, pushing back its own deadline several times for completing a proposed rulemaking. That could be because the plan is so sweeping, some said.
December 14 -
Google should be applauded for deciding to ban payday loan-sponsored ads. But it should tweak some of the details so legitimate lenders can still advertise.
May 17 -
To tackle alternatives to payday lending, regulators and the industry should consider these three ideas for pilot programs instead of the Consumer Financial Protection Bureau trying to fix what it cannot.
April 20
With much press around the Consumer Financial Protection Bureau's
With federal curbs on payday loans approaching, we should look to the experiences of these states to consider the ripple effects that a strong or weak national payday lending rule could have. After all, 90 million people — nearly a third of our nation's population — live in the 14 states and the District of Columbia that ban payday lending.
We are three of those 90 million people. We live in Arkansas, Montana and North Carolina — three states that effectively prohibited payday lending during the last decade. Though our states differ culturally and economically, their experiences with payday lending have been the same. Consumers are much better off without the product. Payday loans are high-cost, predatory products that are marketed as a source of short-term, emergency credit, but they actually ensnare people in long-term debt traps.
States that have banned the product are reporting positive results. Take North Carolina. After the Tar Heel state banned payday lending in 2006, the state
No longer targeted for high-cost, predatory loans they cannot afford, people in our states have found other ways to meet their financial needs — ways that do not result in never-ending debt traps or lead to unregulated loan sharking as industry insiders like to allege.
It would be wrong to assume, however, that our states don't need a strong CFPB rule. In fact, it is because our states already ban payday lending that we need a strong CFPB rule. We, along with our colleagues in other states that ban payday loans, have fought off countless attempts by the payday lending industry to break into our states with their high-cost, predatory loans. So far, we have been successful. But a weak federal rule that continues to allow payday and payday-like loans could put our states' existing consumer protections in extreme jeopardy.
The danger of a weak CFPB rule is already evident in Pennsylvania, one of the 14 states that ban payday lending.
The CFPB must adopt a strong payday lending rule that sets a high bar for the entire country by including provisions that bolster our states' existing consumer protections. For example, the CFPB should make clear that a violation of a state's usury or other consumer protection laws is an unfair, deceptive and abusive practice. The CFPB has
The CFPB should also make clear that companies that facilitate illegal payday lending, whether by generating leads, advertising, or processing payments for payday lenders, are engaging in unfair, deceptive, and abusive practices. Google's
Most fundamentally, the regulation should require that for any kind of loan, the lender must assess the potential borrower's ability to repay the loan based on the person's income, existing obligations and living expenses. The CFPB's blueprint included a glaring loophole that would allow payday and other lenders to continue to make, in some instances, certain kinds of high-cost loans without regard for the borrower's ability to repay. The CFPB should close this and other loopholes not only to protect borrowers but also to reduce the ability of industry representatives to deliberately misrepresent the meaning and intent of the rule.
The experiences of the 90 million people in the payday loan-free states — which we have come to refer to as “Paydayfreelandia” — show that strong, enforceable protections against payday lending are in people's best interest. The lesson from Paydayfreelandia is clear: The only way to address high-cost, predatory lending is to put an end to it once and for all.
