As payday lenders plead to members of Congress for help in handling the potential onslaught of regulations from the CFPB, it appears few are willing to come to the industry's defense.
Last week, The Hill reported that payday lenders were reaching out to members of Congress for assistance as the agency prepares new regulations to prevent what it calls “debt traps.”
“Today the CFPB announced it is considering proposing rules that would end payday debt traps by requiring lenders to take steps to make sure consumers can repay their loans,” a statement on the CFPB's website read. “The proposals under consideration would also restrict lenders from attempting to collect payment from consumers' bank accounts in ways that tend to rack up excessive fees. The strong consumer protections being considered would apply to payday loans, vehicle title loans, deposit advance products, and certain high-cost installment loans and open-end loans.”
As the next step in the rulemaking process, the agency is preparing for a Small Business Review Panel to gather feedback from small lenders.
According to The Hill, “the seven small payday lenders chosen to review the CFPB's regulatory framework in March said they had difficulty engaging constructively with the agency,” and the lenders said they believe the CFPB wants to eliminate the payday industry altogether.
But in an article released yesterday by Morning Consult, payday lenders aren't finding many allies in Congress.
The CFPB wants to eliminate the need for consumers to take on more payday loans to pay back their original payday loans, stating that research shows four out of five payday loans are rolled over or renewed within two weeks.
“For many borrowers, what starts out as a short-term, emergency loan turns into an unaffordable, long-term debt trap,” the CFPB said.
The CFPB also wants to give consumers more time to pay back their loans, and wants payday lenders to ensure consumers can pay back their loans before they are approved.
In a July Pew Charitable Trusts poll, only one in 10 Americans view payday lenders favorably, and while many Americans feel that overdraft charges are too high, they prefer overdraft charges to payday loan fees.
On the fifth anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act, President Obama announced final rules to help prevent U.S. military troops from being taken advantage of by predatory lenders. The Military Lending Act originated as a proposal from the CFPB. Payday loans, among others, are now subject to the Military Annual Percentage Rate cap and other Military Lending Act protections.
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