The Consumer Financial Protection Bureau has imposed tough new rules on payday lenders, The New York Times reports.
The Texas AFL-CIO has supported payday loan reform in Texas, where lenders often prey on military families along with the poor and working poor, but real reform has tended to occur only at the local level in some cities. The big battle in the Legislature this year was to protect local ordinances rather than make significant statewide advances, so action at the federal level is welcome.
The CFPB has a target on its back when it comes to this White House and Congress. This story suggests why:
A federal agency on Thursday imposed tough new restrictions on so-called payday lending, dealing a potentially crushing blow to an industry that churns out billions of dollars a year in high-interest loans to working-class and poor Americans.
The rules announced by the agency, the Consumer Financial Protection Bureau, are likely to sharply curtail the use of payday loans, which critics say prey on the vulnerable through their huge fees.
Currently, a cash-strapped customer might borrow $400 from a payday lender. The loan would be due two weeks later - plus $60 in interest and fees. That is the equivalent of an annual interest rate of more than 300 percent, far higher than what banks and credit cards charge for loans.
Because most borrowers cannot repay their debts quickly, the loans are often rolled over, entangling those who take them in hard-to-escape spirals of ever-growing debt.
The new guidelines pit the consumer bureau, an independent watchdog created in the aftermath of the financial crisis, against congressional Republicans and President Trump, who has made rolling back business regulations a centerpiece of his agenda.
The bureau has aggressively pursued new regulations and enforcement actions since Mr. Trump took office, even as other federal agencies loosened the reins on the industries they monitor.
The payday-lending industry is vast. There are now more payday loan stores in the United States than there are McDonald's restaurants. The operators of those stores make around $46 billion a year in loans, collecting $7 billion in fees. Some 12 million people, many of whom lack other access to credit, take out the short-term loans each year, researchers estimate.
Lenders argue that the loans provide financial lifelines to those in desperate need of cash, and that the high fees and interest rates are justified by the failure of so many borrowers fail to repay the loans.
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