RHETORIC: Payday Lending Trade Group Leader Says Proposed CFPB Regulations Would Force Closure of 60% of Payday Storefronts
“If the CFPB sticks to an outline of its proposal released a year ago, as many as 60% or more of storefront payday lenders could shut down, said Dennis Shaul, chief executive of the Washington-based Community Financial Services Association of America, a leading trade association for short-term lenders. If that happened, consumers would have nowhere to go for emergency funding, he said. Many would likely resort to unregulated online lenders. “We’re concerned that small operators would be driven out of business and small operators are where the most entrepreneurial, novel ideas come from, and where intelligent cost-cutting comes from,” Shaul said.” [American Banker: “CFPB Faces No Win Scenario Payday Lending,” 3/21/16]
REALITY: The CFPB’s Outlined Proposal Is Aimed at Ensuring a Borrowers Ability to Repay the Loan so They Do Not Get Caught in a Cycle of Debt; It’s Not a Ban on Payday Lending
The CFPB’s Proposed Rule Would End Debt Traps by Requiring Lenders to Take Steps to Ensure Customers Can Repay Their Loans.
“The CFPB wrote in a blog post, “Today the Consumer Financial Protection Bureau (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. 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. “Today we are taking an important step toward ending the debt traps that plague millions of consumers across the country,” said CFPB Director Richard Cordray. “Too many short-term and longer-term loans are made based on a lender’s ability to collect and not on a borrower’s ability to repay. The proposals we are considering would require lenders to take steps to make sure consumers can pay back their loans. These common sense protections are aimed at ensuring that consumers have access to credit that helps, not harms them.” [ConsumerFinance.gov, 3/26/15]
Yahoo Finance: “In Truth, The CFPB’s Rules Wouldn’t Eliminate Payday Loans—They Would Just Make Them Less Harmful.”
“In truth, the CFPB’s rules wouldn’t eliminate payday loans — they would just make them less harmful.” [Yahoo Finance, 3/26/15]
REALITY: 81% Of Payday Loan Borrowers Said They Would Simply Cut Back Expenses If Payday Loans Weren’t an Option
Pew Study: 81% Of Payday Borrowers Say They Would Cut Back On Expenses If Payday Loans Were Unavailable.
“Even though most borrowers use payday loans for recurring expenses, rather than for emergencies, survey respondents indicated they would use a variety of options to deal with those needs if payday loans were no longer available. In general, borrowers are more likely to choose options—such as adjusting their budgets, delaying bills, selling or pawning personal items, or borrowing from family or friends—that do not connect them to a formal institution. Eighty-one percent of payday borrowers say they would cut back on expenses if payday loans were unavailable.” [Pew Charitable Trusts, 7/2012]