The war that will be waged over new payday loan rules and regulations has finally commenced. Supporters of the new regulations believe that the rules will protect lower-income borrowers, while those opposed to the regulations are convinced that they would reduce access to credit; these are concerned parties that are now threatening a lawsuit.
The battle over the ideology behind the new regulations started when the Consumer Financial Protection Bureau (CFPB) released a plan that detailed how they would start to require providers of payday loans, title loans and other smaller-dollar cash advance lenders to be certain of a borrower’s ability to repay their loans.
The CFPB’s plan is open to public scrutiny and comment until September 14. It would prevent lenders from making repeated debit withdrawal attempts on the accounts of people who were late in making payments (some have complained that the fees associated with these tactics tacks on additional fees to the original loans. The CFPB has also started an official inquiry into open ended small dollar loans and the methods that lenders utilize in some cases to seize vehicles, wages or other property from borrowers who do not make their loan payments on time.
The proposal comes with a very influential backer – the POTUS himself, President Obama. He made remarks in a March speech to state that every payday lender should, “… first make sure that the borrower can afford to pay it back.”
The man at the center of this entire scenario is the Director of the CFPB, Richard Cordray. During a recent hearing in Kansas City, Mo., Cordray said, “We have made clear our view that the credit products marketed to these consumers should help them, not hurt them. And our research has shown that too many of these loans trap borrowers in debt they cannot afford.
Cassandra Gould is a representative for an organization called Missouri Faith Voices. She tends to agree with Cordray’s statement. She was at the recent hearing and told of someone she knew of who received a payday loan to cover car repairs. Apparently, this person could not repay the loan in full a couple of weeks later. According to the statement Gould gave, the lender then debited this person’s bank account over a dozen times in one day; kicking off what Gould said was a spiral of debt that led to the person getting kicked out of her apartment. Gould said, “The debt trap is more like a death trap.”
On the other side of the fence, we have those who are starkly opposed to the proposed regulation that the CFP has put on the table. Representatives from the payday lending industry say that making lenders assess someone’s ability to repay a loan would drastically increase business expenses. Of course, this would likely lead to some companies pulling out of the payday lending industry, and may very well lead to consumers being reduced to getting money from loan sharks or other lenders that are completely unregulated.
The new rule may cut off or drastically reduce access to credit to nearly 30 percent of the country’s population. Financial times are difficult enough for people these days, especially those from lower income households. Taking away the only financial resource that many of these people can rely on in times of need is certainly not a smart move on anyone’s part. The CFPB seems dead-set on pushing this legislation through. However, with Obama soon leaving office, and people hoping to see real change in this country in the future, there is no telling if the CFPB will be able to convince enough of the right people that there new regulations actually make sense for the people of this country.