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Ever since Richard Cordray slipped behind the wheel of the previously headless Consumer Financial Protection Bureau, the watchdog’s been gunning for one sector in particular: Payday lenders. At a jam-packed press conference in Birmingham, Ala. on Friday, Cordray took to the mic to blast emergency lenders and other so-called nonbanking businesses he blames for the bulk of predatory lending in the country.
Granted, payday lenders aren’t hard to vilify these days and make for an easier target than, say, big banks, but it’s pretty hard to deny their influence on Americans’ debt problem, particularly among our poorest workers. (See how the CFPB plans to size up nonbank lenders.)
If you’re unfamiliar with payday loans, they’re basically a quick way for consumers to make ends meet between paychecks, offering up small amounts of cash that must be repaid quickly (usually by their next paycheck).
The typical loan is a few hundred dollars and comes with a pretty hefty finance charge that varies by state (about $15 to $20 for every $100 borrowed), according to the CFPB.
When handled properly, payday loans function like a much-needed life preserver for struggling consumers. Otherwise, they’re more like a block of cement strapped to their ankles.
Here’s where the trouble starts:
When they sign the loan agreement, people usually miss the part that says the lender can dip into their next paycheck if the loan isn’t repaid on time. The practice is in violation of consumer law and the FTC recently netted a $300,000 settlement from a payday lending scheme in which two companies tried to illegally garnish wages from borrowers.
Generally, borrowers will be forced to take out more loans in order to pay them back, digging themselves into an even deeper hole of debt.
“We recognise the need for emergency credit. At the same time, it is important that these products actually help consumers, rather than harm them,” Cordray said at Friday’s hearing.
Keeping in line with its former calls for stories about misleading mortgage, private student loan and credit lending practices, the agency has opened a new forum to collect consumer comments on payday lenders. Share your story publicly on the forum here or in a private form, which can be found here.
For now, the agency is only gathering stories and hasn’t begun taking action on comments from consumers yet, a spokesperson says.
Here’s a sample: From commenter M. Miller:
“I think these short-term loans fill a need that most consumers need. When used RESPONSIBLY, these loans work out great for every one involved. I worked in the industry and saw many irresponsible borrowers take out loans at multiple companies. This causes a lot of problems! We need a better system, in the industry to see that this doesn’t happen. If we don’t police ourselves, some one else will, with very different results!”
From commenter Scot Putnam:
“The only folks bashing the payday loan industry are the consumer groups that get paid to do so. They are always short on facts and actual customers that used the loans and were hurt. Killing the industry would result in the loss of about 100,000 jobs and important option for consumers. Would you loan someone $100 for 14-31 days for any less than $15? Would you borrow $100 with a fee of $15 to prevent $39 overdraft fees at your bank? There is a reason that people use payday loans and it’s not because they are stupid.”
Watch Cordray’s full address from Friday’s hearing below: