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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Regulation must apply to payday lenders, too
I work with the Mississippians for Fair Lending coalition to reform lending practices. But we can't do it alone. We will need help from national policymakers willing to stand against this powerful lobby. The payday lending industry itself acknowledges that some regulation is in its best interests, and the industry's CFSA website proclaims that “the industry operates currently in 33 states and…is working to be regulated [in] all 50 states.” The CFSA’s implied hope here, of course, is to get a foot in the door in those 17 states that currently ban or curtail payday lending, and to prevent any more states from blocking or further restricting the practice.Skip to next paragraph
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At a time when both the need for consumer protection and creeping unemployment numbers are indisputable, Washington needs to move toward one of the key goals of the Dodd-Frank Act that created the CFPB. This goal: to better protect consumers by helping to ensure that all providers of consumer financial services – banks and nonbanks alike – are treated similarly. Lawmakers need to introduce federal payday lending reforms that bring this industry into compliance with its competitors. Chief among them must be reforms that put a cap on interest rates and lengthen repayment periods.
Regulators could also mandate that all states that still allow the payday lending practice create a statewide database of lender and borrower information. This database would make it easier to track discriminatory and predatory practices by collecting information from consumers, tracking loans, and compiling socioeconomic information about borrowers.
Of course, reforming the payday lending industry won’t eliminate people’s need for short-term loans, especially in tough economic times. But capping interest rates and lengthening repayment periods can help to ensure that payday lenders actually help, rather than gouge, individuals, families, and businesses.
Mississippi and the rest of America have learned first-hand about the high price of a broken consumer credit system, as unregulated borrowing and lending practices bring the economy to the brink. Now, as more and more people are turning to desperate measures to make ends meet, I urge our country’s leadership to review and reform the payday lending industry’s business practices.
Paheadra Robinson is the director of consumer protection for the Mississippi Center for Justice.