Payday Loan Industry Needs Strong CFPB Oversight
By Consumers Union on Friday, May 17th, 2013
Payday loans – the short-term loans with high fees that function as an advance on one’s paycheck – are a highly controversial financial product. While consumers easily can obtain these loans at a storefront lender or online, they can be very difficult to repay.
Since many of the applicants aren’t able to repay the loans when they are due, they often are forced to roll over their loans for additional fees, and can find themselves owing over three times as much as what they had borrowed in the first place. Some consumers have expressed outrage that a quick loan can lead to overwhelming debt.
Crystal, from Missouri, strongly resents payday lenders and shared her story with Consumers Union. She writes:
“[F]or several years, my husband and I were both sucked into very high interest loans that literally made our lives fall apart. We both had a $500 loan (each) that cost $150 a month just to extend, without anything going towards the balance…so we were spending $300 a month between the both of us to just extend the loans without having anything going towards the balances at all. . . . I praise God that we are out from underneath them and pray that we will NEVER have to use them again!”
Crystal’s comments highlight the need for reform of the payday loan industry. Consumers may need access to loans in an emergency, but they should not have to pay outrageous interest rates that dig them further into debt and leave them worse off financially. We support the guidelines set out in the Military Lending Act, which went into effect in 2007. The legislation caps rates on payday and auto title loans to servicemembers at a maximum of 36% APR. We believe that these interest rates should be extended to all consumers. And, as a recent ProPublica piece notes, some policymakers believe these protections should apply to a broader array of loans as well.
We’re looking to the Consumer Financial Protection Bureau as our best chance for strong national rules on payday lenders. In a recent report, the Bureau expressed willingness to enhance consumer protections for payday loan applicants. However, the CFPB’s power to make strong rules could be in jeopardy if the director, Richard Cordray, is not confirmed by the Senate before his term concludes at the end of the year. Currently, a minority of Senators are blocking his confirmation, demanding changes to the CFPB that would weaken its effectiveness as a consumer watchdog.
We need your help in ensuring Richard Cordray’s confirmation. Please send a message to your Senators demanding a vote to confirm Richard Cordray so the CFPB can stop abusive payday loans and other unfair financial industry practices!