Payday loans are usury, pure and simple. ADVERTISING Payday loans are usury, pure and simple. For years, legitimate banks have been prohibited from charging cripplingly high interest rates on loans. The nation’s payday lenders, however, have levied exorbitant interest rates
Payday loans are usury, pure and simple.
For years, legitimate banks have been prohibited from charging cripplingly high interest rates on loans. The nation’s payday lenders, however, have levied exorbitant interest rates on loans to consumers in need of fast cash. Now, the Consumer Financial Protection Bureau intends to rein in the payday loan industry.
Unexpected expenses are part of life. The car breaks down. A major appliance dies. Some people dip into savings, some use credit cards. But not everyone who needs a few hundred bucks has savings or good credit, and payday lenders have been happy to help.
All businesses exist to make profit. But the $38 billion payday advance industry benefits on the backs of the most vulnerable.
Here’s what happens: A consumer gets a $500 payday advance loan. He’d owe $575 after two weeks, or 15 percent. But if payment is not made, additional charges of $75 are added every two weeks thereafter. In a year, his interest rate would amount to 390 percent. Yes — 390 percent.
Moreover, consumers often need to roll the loan over into another one, so they begin the fatal accumulation of debt all over again. Richard Cordray, director of the CFPB, described taking out a payday advance loan as akin to taking a taxi to get across town, then winding up on a “ruinously expensive” cross-country trip.
The CFPB proposes limiting how many times consumers can roll over loans into new ones. That makes sense. The agency would apply the rule to auto-title loans, deposit advance products, and some high-cost installment loans, too. Additionally, CFPB wants the lenders to ensure that consumers are able to repay the loans and not have to take out new ones to meet loan demands.
Finally, the agency would require pay lenders to give consumers notice prior to trying to debit their bank accounts, and it also intends to restrict the number of times lenders can try to debit an account.
The payday industry is complaining. No surprise there. But tightening the reins on those lenders is necessary. This is predatory lending aimed at the working poor.
— Pittsburgh Post-Gazette
