Several weeks ago, the Consumer Financial Protection Bureau (CFPB) announced new rules governing payday lenders set to go into effect in 2019—that is if Congress doesn’t have its say first.
As an aside, my colleagues have previously written on the need for payday loan reform on the state level. A more recent piece speaks to why payday loan reform is good for Alabama, and a piece from 2016 speaks to what the state of payday lending in Alabama looked like.
A Need for Change
Proponents argue that borrowers, often unable to secure other types of loans, get caught up in a vicious cycle of finance charges and fees because payday lenders give customers short-term cash at very high interest rates. Often, the borrowers can’t repay those loans. Opponents of the new rules, and reform generally, argue that implementation would devastate an industry that issues loans to over 30 million people each year. And, the CFPB estimates that the new rules could cut the volume for the payday loan industry (a $49 billion industry) in half.
Ed D’Alessio, Financial Services Association of America’s executive director, said this in regard to restricting payday lending:
“Taking away…access to this line of credit means many more Americans will be left with no choice but to turn to the unregulated loan industry, overseas and elsewhere, while others will simply bounce checks and suffer under the burden of greater debt.”
CFPB Director Richard Cordray counters that argument and discussed the “death trap” consumers face:
“Too often, borrowers who need quick cash end up trapped in loans they can’t afford. The rule’s common-sense ability-to-repay protections prevent lenders from succeeding by setting up borrowers to fail.”
Some of the New Rules
Let’s look at the rules shall we? As discussed in a recent National Public Radio (NPR) article, one new rule would require payday and auto title lenders to determine whether a borrower can afford to repay in full within 30 days. That could thwart a business model that consumer advocates say relies on the rollover of unpaid loans with the accumulation of exorbitant fees and interest rates of 300 percent or more.
The proposed regulations also would limit the number of times a lender can debit a borrower’s account without being reauthorized to do so. As the Associated Press writes: “This is because many payday loan borrowers end up over-drafting their bank accounts, which in turn incurs fees” or forces them to close their accounts.
Overall, payday lenders will need to make sure that customers can pay back the loans and will have fewer options to pile on the fees. Doesn’t sound like too much of a burden, does it? Whether the rules are implemented is still up in the air. As of now, at least 15 states ban payday lenders. Without sounding to cliche, we will wait and see who wins the day: large companies or the consumer.
If you’ve run into a problem with a payday lender, your best bet would be to contact an experienced bankruptcy attorney to discuss your options. The attorneys at Bond & Botes, P.C. have years of experience dealing with a wide variety of loans and debt. Contact one of our attorneys today at one of our many locations to schedule a free consultation.