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Opinion

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.

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One of the report’s more stunning – but by no means unique examples – concerned an Alabama-based airman who initially took out $500 through a payday lender. Due to the lender's predatory practices, she ended up having to take out so many other loans to cover that initial small bill that her total financial obligations to pay off the loans rose to $15,000.

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How could this happen? With payday lending, the entire balance of the loan is due to be paid in two weeks, and the same person who did not have $500 two weeks before can rarely afford to pay the entire loan back plus $100 in fees and interest two weeks later. The borrower simply does not earn enough to live on or meet unexpected expenses, and there’s no raise or bonus in the two-week interim of the loan.

Sometimes the borrower or a family member loses his or her job in that interim two-week period, or other financial hardship arises, often in the form of medical bills. What typically happens is that the consumer renegotiates the loan, which means that the borrower pays that one loan off and then immediately gets a new loan from the lender or gets a loan from another store to cover the cost of paying off the first loan. Then the borrower is stuck with the second loan. Thus a vicious cycle ensues.

Of course, the payday industry's CFSA asserts that 95 percent of borrowers repay loans on time. But the payday lending industry as a whole penalizes a much broader swath of the American people – and economy. The rapidly growing national payday-lending crisis hurts families, businesses, and communities from coast to coast. The North Carolina-based Center for Responsible Lending found that predatory payday lending skinned American families $4.2 billion per year. That is billions taken out of the pockets of Americans – usually those who can least afford it – and the US economy.

In recognition of the fact that a loan to cover a small expense should not be a first step down a road to financial ruin for anyone, 17 states, including possible new CFPB head Mr. Cordray's home state of Ohio, currently ban or severely curtail the practice. Others, including Texas, are considering similar legislation.

But in many states, particularly in the south and Midwest, payday lenders operate with little or no regulation. My own state, Mississippi, is a prime example of payday lending gone wild. Currently, we have about 1,000 payday lending stores. That means we have more payday lending stores than we have McDonalds, Burger Kings, and Wendy’s combined. We have more payday lending stores than we do banks. In fact, Mississippi has more payday lending stores per capita than any other state in the nation.

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