The $ 90 billion payday loan industry lends money to 12 million cash-strapped Americans at sky-high interest rates, forcing them to take out loans to repay their loans, a cycle that prompted the Consumer Financial Protection Bureau (CFPB) to launch crack down on the industry in 2017.
But despite its mission to protect consumers, the CFPB cancels these protections, and an unlikely coalition is mobilizing to fill the void.
‘Help! Help! I’m broke before payday! ‘
Lenders charge high interest rates for emergency “payday” loans that will be repaid by the borrowers’ next payday – in theory, at least.
In reality, the short-term borrowing cycle leads to more debt: 60% of short-term borrowers take out 7 or more loans in a row.
The CFPB has introduced a set of regulations require lenders to determine borrowers’ ability to repay loans before committing to them. But the new CFPB director is now canceling these consumer protections.
Don’t you hate that the consumer watchdog changes teams?
According to The New York Times, the 2 last managers of the CFPB have been “more interested in rewarding the lending industry than protecting borrowers” – AKA doing the exact opposite of their job titles.
Of the 12 million people forced to use payday loans, 80% are back within 2 weeks to borrow more.
Now the federal office created to serve them is eliminate protections to “encourage competition in the payday lending industry.”
States, startups and banks to the rescue
States are now the first line of defense against payday predation: 16 states have already banned payday lending (that’s good for them, but in 6 states the average The interest rate for payday loans remains above 600%.
Several startups, including HoneyBee and Stash, have rolled out products to meet the needs of underbanked people, and even PayPal has introduced inexpensive, non-predatory options for small loans.
Even the banks, which historically did not offer small loans, are starting to offer better deals to borrowers. A payday loan of $ 400 would be Cost $ 350 after 3 months: Banks offer the same loan for $ 48.