Fresh Rules To Ban Payday Lending Debt Traps: The Two-Way: NPR

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New Rules To Ban Payday Lending Debt Traps: The Two-Way: NPR

Fresh Rules To Ban Payday Lending ‘Debt Traps’

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Payday lender ACE Cash Express is seen on San Mateo Boulevard in Albuquerque, N.M. High-interest lending practices are being targeted by fresh federal regulations. Vik Jolly/AP hide caption

Payday lender ACE Cash Express is seen on San Mateo Boulevard in Albuquerque, N.M. High-interest lending practices are being targeted by fresh federal regulations.

The Consumer Financial Protection Bureau on Thursday is proposing fresh regulations to protect consumers from predatory lending practices that the CFPB’s top regulator calls “debt traps.”

Americans are being “set up to fail” by payday and auto-title lenders, Richard Cordray, the director of the Consumer Financial Protection Bureau, tells NPR.

Consumer Financial Protection Bureau Director Richard Cordray (center) listens to comments during a field hearing on payday lending in Richmond, Va., in May. Steve Helber/AP hide caption

Consumer Financial Protection Bureau Director Richard Cordray (center) listens to comments during a field hearing on payday lending in Richmond, Va., in May.

“The way these products are structured, it’s very difficult to repay the loan, and therefore people end up borrowing again and again and paying far more in fees and interest than they borrowed in the very first place,” Cordray says.

Under the proposed rule, so-called “payday,” “auto-title” and other short-term lenders would be required to determine that people they loan money to can make the payments and fees when they come due and still meet basic living expenses and major financial obligations.

With interest rates of 300 percent and higher, these lenders have fallen under greater scrutiny at both the state and federal level. In March of last year, President Obama said he supported tougher regulations for payday lenders who profit by charging borrowers super-high interest rates. “If you’re making that profit by trapping hard-working Americans into a perverse cycle of debt, you’ve got to find a fresh business model,” the president said.

Payday Loans: A Helping Forearm Or Predatory Quicksand?

Let’s say a low-wage worker’s car violates down. She has to get to work and take her kids to school. But she has bad credit, no credit cards and no way to pay for the car repair. A payday lender might in effect say, “No problem. I’ll give you the money you need right now to get your car motionless, and you give me your bank account number, and when you get paid in two weeks I’ll withdraw the money you owe me from your checking account.”

The Two-Way

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Payday Loans — And Endless Cycles Of Debt — Targeted By Federal Watchdog

The industry says these loans are needed to help working Americans through a cash squeeze and that the fresh regulations are unwarranted. “The CFPB’s proposed rule presents a staggering deep-throat to consumers as it will cut off access to credit for millions of Americans who use small-dollar loans to manage a budget shortfall or unexpected expense,” says Dennis Shaul, CEO of the payday lending industry group, the Community Financial Services Association.

But regulators say the problem is that the terms are so onerous that many borrowers can’t afford to pay the loans back and still have enough for their rent and other essentials. And so they end up taking out another loan, and then another loan after that, again and again for months or sometimes years, burying deeper into a quagmire.

Cordray says consumers think they are getting into a one-time loan but they get “trapped” by this cycle. He says it is like “getting in a taxi just to drive across town and you find yourself in cross-country journey that can be ruinously expensive.”

Planet Money

Scene 495: The Weird Internal Workings Of The Payday Loan Business

Planet Money

I Applied For An Online Payday Loan. Here’s What Happened Next

I Applied For An Online Payday Loan. Here’s What Happened Next

  • subscribe to podcast

The CFPB studied the payday lending industry before crafting the proposed rule and found that four out of five of these single-payment loans are re-borrowed within a month. In the case of auto-title loans where borrowers put their cars up as collateral, one in five borrowers finishes up having a car or truck seized by the lender for failure to repay.

Consumer Groups Applaud The Rule But Wary Of Loopholes

Watchdog groups for decades have been critical of payday lenders. “The lesson from the last 20 years since this industry embarked is that it’s been remarkably effective at evading attempts at regulation and using a very high-powered lobbying machine to shove for loopholes,” says Mike Calhoun, the president of the Center for Responsible Lending.

Calhoun says he supports the proposed rule from the CFPB, but he’s still worried the industry will find a way to work around it.

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The Two-Way

The Two-Way

About

The Two-Way is the place to come for cracking news, analysis and for stories that are just too interesting – or too entertaining – to pass up. Get in touch with your questions, comments and leads.

Fresh Rules To Ban Payday Lending Debt Traps: The Two-Way: NPR

Fresh Rules To Ban Payday Lending ‘Debt Traps’

  • Facebook
  • Twitter
  • Flipboard
  • Email

Payday lender ACE Cash Express is seen on San Mateo Boulevard in Albuquerque, N.M. High-interest lending practices are being targeted by fresh federal regulations. Vik Jolly/AP hide caption

Payday lender ACE Cash Express is seen on San Mateo Boulevard in Albuquerque, N.M. High-interest lending practices are being targeted by fresh federal regulations.

The Consumer Financial Protection Bureau on Thursday is proposing fresh regulations to protect consumers from predatory lending practices that the CFPB’s top regulator calls “debt traps.”

Americans are being “set up to fail” by payday and auto-title lenders, Richard Cordray, the director of the Consumer Financial Protection Bureau, tells NPR.

Consumer Financial Protection Bureau Director Richard Cordray (center) listens to comments during a field hearing on payday lending in Richmond, Va., in May. Steve Helber/AP hide caption

Consumer Financial Protection Bureau Director Richard Cordray (center) listens to comments during a field hearing on payday lending in Richmond, Va., in May.

“The way these products are structured, it’s very difficult to repay the loan, and therefore people end up borrowing again and again and paying far more in fees and interest than they borrowed in the very first place,” Cordray says.

Under the proposed rule, so-called “payday,” “auto-title” and other short-term lenders would be required to determine that people they loan money to can make the payments and fees when they come due and still meet basic living expenses and major financial obligations.

With interest rates of 300 percent and higher, these lenders have fallen under greater scrutiny at both the state and federal level. In March of last year, President Obama said he supported tougher regulations for payday lenders who profit by charging borrowers super-high interest rates. “If you’re making that profit by trapping hard-working Americans into a perverse cycle of debt, you’ve got to find a fresh business model,” the president said.

Payday Loans: A Helping Arm Or Predatory Quicksand?

Let’s say a low-wage worker’s car cracks down. She has to get to work and take her kids to school. But she has bad credit, no credit cards and no way to pay for the car repair. A payday lender might in effect say, “No problem. I’ll give you the money you need right now to get your car immovable, and you give me your bank account number, and when you get paid in two weeks I’ll withdraw the money you owe me from your checking account.”

The Two-Way

Google Announces It Will Stop Permitting Ads For Payday Lenders

Politics

Payday Loans — And Endless Cycles Of Debt — Targeted By Federal Watchdog

The industry says these loans are needed to help working Americans through a cash squeeze and that the fresh regulations are unwarranted. “The CFPB’s proposed rule presents a staggering deepthroat to consumers as it will cut off access to credit for millions of Americans who use small-dollar loans to manage a budget shortfall or unexpected expense,” says Dennis Shaul, CEO of the payday lending industry group, the Community Financial Services Association.

But regulators say the problem is that the terms are so onerous that many borrowers can’t afford to pay the loans back and still have enough for their rent and other essentials. And so they end up taking out another loan, and then another loan after that, again and again for months or sometimes years, submerging deeper into a quagmire.

Cordray says consumers think they are getting into a one-time loan but they get “trapped” by this cycle. He says it is like “getting in a taxi just to drive across town and you find yourself in cross-country journey that can be ruinously expensive.”

Planet Money

Scene 495: The Weird Internal Workings Of The Payday Loan Business

Planet Money

I Applied For An Online Payday Loan. Here’s What Happened Next

I Applied For An Online Payday Loan. Here’s What Happened Next

  • subscribe to podcast

The CFPB studied the payday lending industry before crafting the proposed rule and found that four out of five of these single-payment loans are re-borrowed within a month. In the case of auto-title loans where borrowers put their cars up as collateral, one in five borrowers finishes up having a car or truck seized by the lender for failure to repay.

Consumer Groups Applaud The Rule But Wary Of Loopholes

Watchdog groups for decades have been critical of payday lenders. “The lesson from the last 20 years since this industry embarked is that it’s been remarkably effective at evading attempts at regulation and using a very high-powered lobbying machine to thrust for loopholes,” says Mike Calhoun, the president of the Center for Responsible Lending.

Calhoun says he supports the proposed rule from the CFPB, but he’s still worried the industry will find a way to work around it.

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  • Twitter
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  • Email

The Two-Way

The Two-Way

About

The Two-Way is the place to come for violating news, analysis and for stories that are just too interesting – or too entertaining – to pass up. Get in touch with your questions, comments and leads.

Fresh Rules To Ban Payday Lending Debt Traps: The Two-Way: NPR

Fresh Rules To Ban Payday Lending ‘Debt Traps’

  • Facebook
  • Twitter
  • Flipboard
  • Email

Payday lender ACE Cash Express is seen on San Mateo Boulevard in Albuquerque, N.M. High-interest lending practices are being targeted by fresh federal regulations. Vik Jolly/AP hide caption

Payday lender ACE Cash Express is seen on San Mateo Boulevard in Albuquerque, N.M. High-interest lending practices are being targeted by fresh federal regulations.

The Consumer Financial Protection Bureau on Thursday is proposing fresh regulations to protect consumers from predatory lending practices that the CFPB’s top regulator calls “debt traps.”

Americans are being “set up to fail” by payday and auto-title lenders, Richard Cordray, the director of the Consumer Financial Protection Bureau, tells NPR.

Consumer Financial Protection Bureau Director Richard Cordray (center) listens to comments during a field hearing on payday lending in Richmond, Va., in May. Steve Helber/AP hide caption

Consumer Financial Protection Bureau Director Richard Cordray (center) listens to comments during a field hearing on payday lending in Richmond, Va., in May.

“The way these products are structured, it’s very difficult to repay the loan, and therefore people end up borrowing again and again and paying far more in fees and interest than they borrowed in the very first place,” Cordray says.

Under the proposed rule, so-called “payday,” “auto-title” and other short-term lenders would be required to determine that people they loan money to can make the payments and fees when they come due and still meet basic living expenses and major financial obligations.

With interest rates of 300 percent and higher, these lenders have fallen under greater scrutiny at both the state and federal level. In March of last year, President Obama said he supported tougher regulations for payday lenders who profit by charging borrowers super-high interest rates. “If you’re making that profit by trapping hard-working Americans into a perverse cycle of debt, you’ve got to find a fresh business model,” the president said.

Payday Loans: A Helping Palm Or Predatory Quicksand?

Let’s say a low-wage worker’s car cracks down. She has to get to work and take her kids to school. But she has bad credit, no credit cards and no way to pay for the car repair. A payday lender might in effect say, “No problem. I’ll give you the money you need right now to get your car stationary, and you give me your bank account number, and when you get paid in two weeks I’ll withdraw the money you owe me from your checking account.”

The Two-Way

Google Announces It Will Stop Permitting Ads For Payday Lenders

Politics

Payday Loans — And Endless Cycles Of Debt — Targeted By Federal Watchdog

The industry says these loans are needed to help working Americans through a cash squeeze and that the fresh regulations are unwarranted. “The CFPB’s proposed rule presents a staggering gargle to consumers as it will cut off access to credit for millions of Americans who use small-dollar loans to manage a budget shortfall or unexpected expense,” says Dennis Shaul, CEO of the payday lending industry group, the Community Financial Services Association.

But regulators say the problem is that the terms are so onerous that many borrowers can’t afford to pay the loans back and still have enough for their rent and other essentials. And so they end up taking out another loan, and then another loan after that, again and again for months or sometimes years, drowning deeper into a quagmire.

Cordray says consumers think they are getting into a one-time loan but they get “trapped” by this cycle. He says it is like “getting in a taxi just to drive across town and you find yourself in cross-country journey that can be ruinously expensive.”

Planet Money

Gig 495: The Weird Inward Workings Of The Payday Loan Business

Planet Money

I Applied For An Online Payday Loan. Here’s What Happened Next

I Applied For An Online Payday Loan. Here’s What Happened Next

  • subscribe to podcast

The CFPB studied the payday lending industry before crafting the proposed rule and found that four out of five of these single-payment loans are re-borrowed within a month. In the case of auto-title loans where borrowers put their cars up as collateral, one in five borrowers completes up having a car or truck seized by the lender for failure to repay.

Consumer Groups Applaud The Rule But Wary Of Loopholes

Watchdog groups for decades have been critical of payday lenders. “The lesson from the last 20 years since this industry commenced is that it’s been remarkably effective at evading attempts at regulation and using a very high-powered lobbying machine to shove for loopholes,” says Mike Calhoun, the president of the Center for Responsible Lending.

Calhoun says he supports the proposed rule from the CFPB, but he’s still worried the industry will find a way to work around it.

  • Facebook
  • Twitter
  • Flipboard
  • Email

The Two-Way

The Two-Way

About

The Two-Way is the place to come for cracking news, analysis and for stories that are just too interesting – or too entertaining – to pass up. Get in touch with your questions, comments and leads.

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