Payday loan debt spiral will be reduced


Federal regulators are expected Thursday to announce new rules that could end payday loans, which have been criticized for charging high interest rates and short-term loans on which many Americans depend.

Borrowing money out of their paychecks is a common practice.

These loans are generally not available to traditional bank branches. Payday loans are becoming increasingly popular in at most 30 states. A dozen states have their own rate caps and regulations. Online lenders are more than 16,000 while stores make enormous profits. Find out more at

The Consumer Financial Protection Bureau was established to monitor the banking industry in response to the 2010 banking law. Lenders will have to verify income and prove that clients can repay their loans.

To be effective, the guidelines do not need to be approved either by Congress or another authority.

The Obama administration believes that such restrictions are needed in order to stop consumers from taking on more debts than they can afford. Donald J. Trump, along with many Republicans, have declared that they want the consumer agency to be abolished.

Richard Cordray from the consumer agency stated that the economics of payday loans are based on a substantial percentage of borrowers who can’t repay the loan. Additionally, they tend to borrow more at high interest rates. It’s almost like getting a taxi to cross town and then driving for miles through the ruinous countryside.

Financial support from vulnerable borrowers

According to lenders, the proposed rules would devastate their industry and take away financial support from vulnerable borrowers.

Dennis Shaul is the chief executive of Community Financial Services Association of America. He stated that thousands of lenders, especially small ones, would have to close their doors and make cuts. This will leave communities with very few options. The group is for payday lender.

According to the group’s website: “More than 19 Million American households have personal loans as part of their short-term credit options.”

According to the Consumer Financial Protection Bureau (CFPB), the median fee for an instore payday loan was $ 15.50 per $100 borrowed.

Both sides agree that the rules proposed will fundamentally reshape the market. Lender fees of $ 7 Billion per year and loan volume could also fall according to the consumer protection agency.

According to lenders, this could lead to many small businesses going out of business.

Individuals and companies could go to court to contest the rules or take legal action. Republican legislators frequently criticize the Consumer Financial Protection Bureau. Trump, the Republican presidential candidate, stated that he wanted to repeal or demolish almost all of Dodd-Frank Act.

Democratic presidential candidates support stricter lending regulations. Senator Bernie Sanders requested a 15% rate cap for all consumer loans, and that post offices become basic banking centers. This change could prevent payday lenders from “scamming millions” of Americans, he stated in January.

Hillary Clinton rented the payday loans proposals released by the consumer protection office last year. She encouraged fellow Democrats not to support Republicans’ attempts to “defend or fund” the agency.

Payday loan advocates want new rules

Some feel the current rules are too restrictive.

Nick Bourke, Pew Charitable Trusts’ research director, stated that the “it misses it” mark. “He has done extensive research about small loans. “CFPB’s underwriting process has been very useful. However it should be clearer about product safety standards. 

Particularly, Mr Bourke expressed disappointment that the agency dropped a suggestion that long-term loan repayments shouldn’t consume more than 5% of a borrower’s monthly earnings.

Others who are interested are consumers say they would welcome any protections in an industry that has been run like the Wild West.

George Goehl, executive director of People’s Action Institute claimed that the group has been working to address this issue for years. “Predatory payday lender have been taking money away from people who had very little at the beginning for decades.

Candice Byrd, 29 years old, is a former payday lender who supports more regulation in an industry that she considers rapacious and destructive.

The loan term was for six weeks. However the lender suggested that the loan could be converted to a loan. She described it as “You are a good client.” It would be a great idea, “recalls Mrs. Byrd. It was the worst idea that I have ever heard.

Ms. Byrd took out several loans to pay off her debt. She claimed that she was unable pay her bills and had to give up her car. She surrendered her last two loans in order to make ends meet.

Ms. Byrd now has the ability to pay cash for all her expenses. Although she isn’t sure that the Consumer Agency’s rules helped her avoid falling into debt, it would have been much easier to stop the cycle.

She said that these places want to continue borrowing. They don’t want you to leave the hole.


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