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    Obama Admin to Regulate Payday Loans

    Obama Admin to Regulate Payday Loans

    Regulate all the things!

    The nation’s payday and auto title lenders are now the latest target of the Obama administration in an effort to transform the relationship between private lending companies, their borrowers, and the government. For the very first time, high-interest lending companies will face regulations set forth by the federal government.

    Credit of this type typically involves an immediate, short-term loan of a few hundred dollars that comes with a high interest rates and lending fees. When costs are combined, the annual interest rate of these loans often calculate to around 300%.

    Until now, regulation of this $39 billion industry had been left up to the states. This week, the Consumer Financial Protection Bureau (CFPB), an agency conceived by Sen. Elizabeth Warren, announced the beginnings of a regulatory framework intended to protect the roughly 12 million low-income households borrowing from these often described “predatory” lenders.

    Rules proposed by the CFPB will require lenders to assess the borrower’s ability to pay back the loan before an exchange of money takes place. Payday lenders fear this step will make it more difficult to roll over loans, a frequent practice of high-interest lenders that usually results in the hiking of the lender’s borrowing fees.

    Critics of the new regulations claim the requirements would be detrimental to lenders that rely on high fees and interest rates that make a short-term loan profitable. They would “largely eliminate the small-dollar short-term lending industry,” said Jamie Fulmer, a representative for payday lender Advance America.

    The Obama administration’s plans to regulate what has traditionally been left up to the discretion of the states don’t stop there. The Wall Street Journal explains:

    The payday rule comes a month after the CFPB finalized a proposal to make it easier for consumers to file class-action lawsuits against financial institutions, by barring mandatory arbitration. A month before that, the Labor Department announced a plan to overhaul retirement-savings advice, stoking ire from the industry and prompting a lawsuit this week from big-business trade groups seeking to overturn the measure.

    The CFPB plans to roll out in the coming months new rules governing prepaid cards, bank overdraft fees and debt collection. The agency indicated in this week’s payday announcement that still more rules are coming for that sector, saying it was “launching an inquiry into other potentially high-risk loan products and practices that are not specifically covered by the proposed rule.”

    Whether or not the new payday loan regulations will protect lower-income individuals in the long run remains to be seen. If critics like Fulmer are correct, however, America has a boom in the loan shark industry to look forward to.


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    genes | June 3, 2016 at 1:58 am

    None of this is to protect the consumer, it’s to protect the Brick and Mortar banks.

    Albigensian | June 3, 2016 at 10:05 am

    Some borrowers have an astoshingly high discount rate: that is, they’d rather have ten dollars today than one hundred dollars next week.

    So long as that’s the case, lenders will find a way to service that market. Just as when state usury laws placed limits on installment credit interest rates, merchants responded with Rent-to-Own, and slum stores (hello, Fingerhut!) which offer easy, reasonably priced credit that is paid for with prices that are far higher than what one can easily obtain elsewhere.

    Thus, should Payday loans be regulated out of existence I don’t doubt that alternatives will quickly appear. And, although these may be even more injurious to those with the poor judgement to use them, they just might be legal. For where markets exist, creativity is invariably brought to bear to serve them.

    (And, yes, the constitutional basis for regulating intra-state commerce seems mighty thin indeed, but, that bridge was crossed a long time ago.)

    healthguyfsu | June 3, 2016 at 12:48 pm

    What has credit scoring not been deemed racist yet by the progressives?

    lawdoc | June 5, 2016 at 2:04 am

    Protects the big banks. Banks charge huge overdraft fees now. If a poor person needs a loan to make until their next paycheck in a week, they can borrow a $100 at the corner legally and pay back $110 in a week. Cost $10. Alternative is write an NSF check for $100, pay $35 overdraft penalty to big bank, face possible warrant for check kiting. Easy for us to look down on this clientele, but payday loans offer a needed service less expensively than banks. The Feds should stay out and quit supporting the big banks at the expense of the poor.

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