The Politics of Pay Day Loans
Pay day lending rules protecting Consumers may soon end thanks to lobbyists and Trump but the public is still being sucked in
Number of storefront pay day loans places are increasing.
Enter any business that offers payday, or similar loans at the beginning of the month when people get social security or retirement checks, or on days working Americans get paid, and you will likely see people going in and out of pay day loan businesses in a steady stream to make their payments on Pay Day, title, installment, and other loans. And all but about 2,000 lenders are owned and run by corporations, banks, wall street, and politicians.
Pay Day lenders target the elderly, disabled, poor, and low or middle income working Americans who can’t qualify for bank loans because of income, non-existent or poor credit, or are considered high risk because of age or a disability. Loans are usually taken out to pay for rent or mortgage payments, car repairs or payments, medical bills, etc. With the number of pay day loan businesses increasing, there may be up to a dozen lenders in a two or three block area , especially in smaller towns and low income urban areas, it is easy to lure the most vulnerable inside.
Types of Pay Day loans and short/long term costs to borrowers
Payday loans are tied to pre-income tax returns, Christmas loans, and a ‘check cashing service’ for those who don’t have a bank account or whose paychecks are from another state and can’t be cashed at typical retail stores. Most grocers and discount stores won’t cash a pay check or income tax return over a certain amount forcing consumers to go to ‘check cashing businesses that charge up to 10% of the check’s total.’
Interest rates on Pay Day loans average 391%, but if payments are not made on time they can increase to as high as 521%. Borrowers may not know they need to pay $75-$100 above the minimum on installment loans to keep payments from ballooning out of control. 80% of borrowers are forced to roll over or refinance the same debt, sometimes for years. Another lure is the advertisement's that there is no credit check, and that they can get cash immediately and easily
Pay Day loan staff don’t explain the initial costs in depth, giving only enough detail to hook borrowers into taking out a loan. The elderly and disabled may not understand how the high interest rates will affect the life of the loan. A $500 static loan means paying back $575-$600, and many loan holders end up taking out one or more static loans to help pay fees on installment loans. This is called ‘flipping’ and is a common practice.
Statistics and data related to Pay Day Loans
As cited by authors Adam Tempkin and Christopher in the Feb. 14th online edition of Bloomberg, “approximately 12 million Americans take out high interest loans either online or through 16,000 plus storefront offices every year.” Furthermore, Alex Horowitz, senior research officer with Pew Charitable Trust’s consumer finance project reported that U.S. consumers borrow nearly $90 billion every year in short-term, small-dollar loans that typically range from $300 to $5,000, according to a 2018 report from the Office of the Comptroller of the Currency (OCC).
2017 CFBB rules added consumer protections related to Pay Day Loans
The Obama era Consumer Financial Protection Bureau (CFPB) finalized rules on October 5th, 2017 to stop Pay Day loan debt traps. Lenders had to determine upfront whether applicants can afford to repay loans, could only give out no more than three pay day loans, and put a cap on static pay day loans to $500. The rule also prohibited lenders from debiting payments from bank accounts, a practice that racked up fees and lead to account closure.
The Consumer Protection Bureau is siding with banks and corporations
As reported by the New York Times , The new director of the Consumer Protection Bureau, Kathleen Kraninger has proposed eliminating most of the CFPB regulation’s substantive requirements protecting consumers including the “ability to repay” mandate. Her excuse is that there is “insufficient evidence and legal support for the provision.” The Trump administration first kept the Obama era consumer protection pay day loan rules from going into effect, and now Kraninger wants to get rid of them altogether.
Linda Jun, the senior policy counsel for Americans for Financial Reform, responded by saying, “It’s not like the CFCB wrote the 2017 rule on a whim. “It was the outcome of a five-year process, following in depth research and conversations with stakeholders on all sides. The Catholic church has been raising their voices for years, pleading with politicians to put the brakes on the pay day loan industry because they have had to deal with borrowers on the verge of becoming homeless because they can’t keep up and trying to raise money to help borrowers escape the pay day loan trap. Sadly has just energized the pay day loan industry.
Right now the proposed changes by the Trump Administration are open for public comment as required by federal law. Now is the time for the public to call and email legislators, especially with Democrats now having control of the House, and to join the Catholic church in raising your voice.
For individual 2018 state Pay Day Lending Statutes go to http://www.ncsl.org/research/financial-services-and-commerce/payday-lending-state-statutes.aspx
