CFPB Asks to Have Federal Government Regulate Payday Loans
Since 2010, the Consumer Financial Protection Bureau (CFPB) has taken on the payday loan industry by pushing for change. States like Arizona placed a bank on payday loans. Other states enacted legislation limiting loan amounts and interest rates. The organization's latest measure is very concerning to some borrowers.
The Debt Trap Rule Proposal
One of the latest efforts by the CFPB is the proposal for 12 CFR 1041. The goal of this is to have the government regulate aspects of payday loans, title loans, and other high-interest installment loans. Hearings to discuss this proposal take place in October.
The main purpose of the regulations would be for government to step in and require all lenders of a payday, title, or other high-interest installment loan to measure a borrower’s ability to repay the money. They would have to access and analyze credit reports, measure the debt-to-income ratios of applicants, and ensure the borrower can truly afford the loan. There are two big exception to the rule, and that is a credit check wouldn’t be required for loans of less than $500 and that mortgage and car loans are exempt.
The CFPB's Regulation Proposal is Concerning to Many Borrowers
Many people only take out payday or title loans when they desperately need cash and have no other option. Requiring payday loan companies to run full credit checks is going to drive up costs and lead to application denials. It will hurt the people who most need money as they do not qualify for traditional bank loans due to problems with no credit rating or poor credit. There’s also a concern with the time it takes to get a traditional loan vs. the overnight benefit a payday loan offers.
If payday loan and title loan companies get pushed out of business, borrowers who’ve used these methods in a responsible manner fear they’ll never be able to pay for emergency medical bills and other unplanned expenses. People who need the short-term loan to pay for an unexpected car repair fear they’ll lose their job as they can’t get to and from work. Those who borrow to pay for emergency medical bills fear they'll be forced to stop seeing a doctor or paying for necessary medications.
Dennis Shaul, CEO of Community Financial Services of America, questions CFPB’s tactics when only one out of five borrowers run into problems with payday loans. Four of every five borrowers, borrow the money, pay it back on schedule, and never have issues. Why punish them?