fresh voices from the front lines of change







The Consumer Financial Protection Bureau unveiled a new set of proposals this past March to protect Americans from payday loans, a $27 billion industry offering short-term loans due the next payday. Now the industry is weighing in, saying that the rules would break their business model. Good.

Payday loan corporations claim that they are just providing families with poor credit ratings a way to make it to their next payday. While a noble enterprise, these claims unfortunately do not hold up to any scrutiny whatsoever.

The truth is that payday lenders trap their customers in a vicious cycle of debt. With usurious annual interest rates in excess of 500 percent and a barrage of fees, they leave their customers no choice but to come back for more. Though payday loans are usually quite small and typically under $500, the debt can actually bankrupt the customer.

Luckily the Consumer Financial Protection Bureau, tasked with protecting us from such behavior, has begun writing a series of new rules to prevent the worst abuses of the payday loan industry. These include such common sense measures such as not allowing the customer to rollover the loan multiple times, limiting fees to a single finance charge, and, well, checking that customers can actually, you know, pay back the loan.

Industry groups of course wailed at the very mention of these proposals, estimating according to a report this week that 70 percent of loans would be illegal or unprofitable and 82 percent of revenue would be lost. This begs the question: What kind of loans are they making and where is their money coming from? If the simple requirement that they not prey on their customers destroys their business model, it follows that their business model is built around preying on their customers.

Access to credit is important to our economy; it allows us to achieve our dreams, whether it be a car, a house, or a business. But bankers and lenders should be granting opportunities for those who need it, instead of squeezing profits out of the poor and marginalized. We learned in 2008 what financiers mean when they say they are doing a “public service.” When payday lenders tell us they are giving loans to the poor out of the goodness of their hearts, we need to tell them that we won’t be fooled again. We stand behind the Consumer Financial Protection Bureau in their efforts to make finance serve us.

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