You saw what happened recently with Wells Fargo. They scammed some of their customers some of the time. Payday lending is about scamming all of the customers all of the time.
At Ourfuture.org, we have long been warning about and exposing the payday lending debt-trap scam. The payday loan industry business model is to make unaffordable loans that entrap low-income people into a cycle of debt so the amounts owed grow and grow, and they say so. Last month’s post, “Help Stop The Payday Loan Debt-Trap Scam,” explained:
The “debt trap” is the actual business model, and they say so.
One payday loan CEO said of their “customers”: “The theory in the business is [that] you’ve got to get that customer in, work to turn him into a repetitive customer, long-term customer, because that’s really where the profitability is.”
Another payday lender even put out a training manual for new employees, saying to employees that their job is to push borrowers from one payday loan to the next.
The chairman of the payday lender‐supported Consumer Credit Research Foundation and president of the Payday Loan Bar Association wrote an email saying, “In practice, consumers mostly either roll over or default; very few actually repay their loans in cash on the due date.”
This is the very definition of predatory.
CFPB Proposing A New Rule To Crack Down
Now The Consumer Financial Protection Bureau (CFPB) has released early draft of a proposal to reign in the worst abuses of the industry. The proposal Is a mixed bag of potentially good, but complicated options.
The CFPB proposal includes an affordability standard. The rule would require lenders to look at a borrower’s income, debts and expenses to determine if a loan is affordable. In other words, lenders would have to see if the borrower can reasonably be expected to pay off the loan and still afford food and pay rent and utilities.
But there is a loophole in this affordability requirement. Payday lenders still could make up to six unaffordable short-term loans to the same borrower. This puts a government seal of approval on bad loans. If this gets through the CFPB it could undermine and endanger tough state laws and rate caps.
Instead, the CFPB should require that lenders verify borrowers’ ability to repay the loan and still be able to cover basics, like food and rent, before making any loan. If a borrower is still in debt two months after taking out a two week loan, that is not a good loan, that loan should be presumed to be a bad or unaffordable loan.
Here are some of the things people should ask the CFPB to add to the rules:
● Require all high-cost lenders, including payday, installment and car title lenders, to confirm before making a loan that a borrower can reasonably be expected to repay it without defaulting on other bills and without taking out a new loan.
● Make affordability the standard for all loans, without exception. Do not allow loopholes for lenders to choose how they are regulated.
● For short-term loans, limit the amount of time that lenders can keep borrowers in payday loan debt to no more than 90 days in a 12-month period;
● For longer-term loans, address reborrowing for loans that become debt traps and discourage loan terms in which the borrower is not making significant progress toward paying off the debt
These standards and practices should apply to the first loan and every loan, without exception.
This industry has a record of not just using loopholes but basing its business model on exploiting loopholes. So we need to make sure rule does what intended. This industry has proven they cannot be trusted, that they will take advantage. We need very tight rules.
Step up and send a comment to the Consumer Financial Protection Bureau, urging them to create the strongest rule possible to rein in industry.
The federal comment period ends on October 7th. We need you to make a comment by going to: http://stoppaydaypredators.org/CAF/
Here are a few of Ourfuture.org’s posts on predatory lenders:
Also check #StopTheDebtTrap on Twitter.