It’s small wonder that the payday loan industry thrives across the country.
Lenders make loans that are generally targeted toward America’s most cash-strapped individuals and families. Reportedly, about 70 percent of all borrowers desperately need the quick cash infusions provided by the loans to pay for basic living needs.
And those needs are, of course, recurring, resulting in a high likelihood that many borrowers will return to the lending well.
And that well, says one legal aid lawyer, is “toxic,” with payday loans being a major cause for bankruptcy filings across the country.
The reason: The payback terms associated with such loans are routinely marked by harsh — even draconian — exactions. A New York Times article recently noted that some lenders charge interest of 400 percent or more on their products.
“We don’t mind seeing folks make a profit,” said President Obama recently. In endorsing proposed changes to the industry last month, though, the president added that payday lenders need to adjust a business model that profits them “by trapping hard-working Americans into a vicious cycle of debt.”
That concern is what is driving proposed changes to the industry that were recently authored and made public by the federal Consumer Financial Protection Bureau.
As the above-cited article notes, the agency’s reform task is difficult, given the need to strike an equitable balance between curbing truly predatory conduct and retaining the availability of credit to many consumers who cannot access loans through mainstream bank products.
Various reform proposals are offered in the CFPB proposals, ranging from increased lender due diligence to ensure that borrowers can repay debts in timely fashion to lower ceilings on interest rates.
The rules are not yet approved, with the Times article stating that the proposals “are likely to set off a fresh round of lobbying from the [payday loan] industry.”
Source: The New York Times, “Payday loan rules proposed by consumer protection agency,” Michael D. Shear and Jessica Silver-Greenberg, March 26, 2015