Payday lenders prey on the poor, costing Americans billions. Will Washington act?
The minimally regulated, fast growing payday lending industry strips Americans of billions annually. It's time for the new Consumer Financial Protection Bureau to implement regulations to curb predatory lending so that a $400 loan doesn't put a borrower thousands of dollars in debt.
Today, the Senate Banking Committee convenes to discuss the confirmation of Richard Cordray, nominated to become the first head of the Consumer Financial Protection Bureau (CFPB). On this historic day, as President Obama prepares to deliver a speech addressing the nation’s continuing unemployment crisis, we urge our elected officials and the CFPB leadership to prioritize oversight of the payday lending industry.Skip to next paragraph
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This minimally regulated, $30 billion-a-year business offers low-dollar, short-term, high-interest loans to the most vulnerable consumers – people who, due to economic hardship, need fast cash but are considered too risky for banks. These loans then trap them in a cycle of mounting debt. With interest rates that can reach 572 percent, anyone who borrows $400 (the current maximum loan amount allowed in my state of Mississippi, although limits vary state to state) can find themselves thousands of dollars in debt.
Who gets caught in this vicious cycle? It’s not just a small, struggling subset of the American population. In these challenging economic times, people of all ages, races, and classes need a little help getting by until the next paycheck. The payday lending industry’s own lobbying arm, the Community Financial Services Association (CFSA), boasts that “more than 19 million American households count a payday loan among their choice of short-term credit products.”
But a February 2011 National People’s Action report found that the industry disproportionately affects low-income and minority communities. In black and Latino neighborhoods, payday lenders are three times as concentrated compared to other neighborhoods, with an average of two payday lenders within one mile, and six within two miles.
In 2007, a report by Policy Matters Ohio and the Housing Research and Advocacy Center found that the number of payday lending shops in the state catapulted from 107 locations in 1996 to 1,562 locations in 2006, a more than fourteen-fold increase in a decade. Nationally, the industry doubled in size between 2000 and 2004.
How payday lenders prey on poor
Previously, one of the industry’s prime targets was the US military. It preyed on service members so aggressively that Congress outlawed payday loans for active-duty troops. That was in 2006, in the wake of a General Accounting Office report that revealed as many as 1 in 5 service members fell prey to the high-interest lenders that set up shop near military bases.