CFPB, Obama Take Aim at Payday Lenders

Photo (cc) by rinkjustice

In an effort to protect struggling Americans and their money, President Obama is supporting new rules proposed by the Consumer Financial Protection Bureau that would help prevent consumers from harmful payday loan debt traps.

In theory, payday loans are short-term, high-interest loans intended to help Americans who need a little extra cash to tide them over between paychecks. Unfortunately, many borrowers end up extending the loans because they can’t pay them off in full. Meanwhile, excessive interest and fees continue to accumulate, trapping consumers in a seemingly never-ending cycle of debt.

I could go on, but basically, payday loans are bad news and most often hurt those who are least able to afford it.

The CFPB’s new proposal, which would also cover vehicle title loans and other specific high-cost installment and open-end loans, would require lenders to take steps to ensure that borrowers can pay back their loans. For example, lenders would need to verify borrowers’ incomes before giving a loan their stamp of approval.

Sounds pretty basic, right? President Obama thinks so. In a speech Thursday at Lawson State Community College in Birmingham, Alabama, Obama said: “The idea is pretty common sense: If you lend out money, you have to first make sure that the borrower can afford to pay it back.”

Until now, the multibillion-dollar payday industry has primarily been regulated by the states. But more needs to be done, the CFPB said.

The CFPB recognizes consumers’ need for affordable credit but is concerned that the practices often associated with these products – such as failure to underwrite for affordable payments, repeatedly rolling over or refinancing loans, holding a security interest in a vehicle as collateral, accessing the consumer’s account for repayment, and performing costly withdrawal attempts – can trap consumers in debt. These debt traps also can leave consumers vulnerable to deposit account fees and closures, vehicle repossession, and other financial difficulties.

The payday loan industry argues that the rules would prevent millions of Americans who live from paycheck to paycheck from accessing credit. “New rules must achieve the delicate balance of preserving consumers’ access to credit, while enhancing consumer protections,” said the Community Financial Services Association of America.

Obama said charging a reasonable amount on interest on a loan is acceptable, but trapping struggling Americans in an expensive cycle of debt and fees cannot be tolerated:

“As Americans, we believe there’s nothing wrong with making a profit. But if you’re making that profit by trapping hardworking Americans into a vicious cycle of debt, you’ve got to find a new business model.”

Find out more about the CFPB’s proposal to end payday debt traps.

I took out a few payday loans after college when I was making about $6 an hour and living paycheck to paycheck as a TV reporter. The interest rates and fees were so ridiculously high that after I paid the loan off, I was broke again and often forced to take out another payday loan. It truly was a vicious cycle, so I applaud the CFPB’s efforts to try and regulate these predatory loans.

What do you think about the CFPB’s proposal? Do you have any experience with payday loans? Share your comments below or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
20 Generic Brands That Amazon Created
20 Generic Brands That Amazon Created

Amazon’s growing collection of private brands offers everything from toilet paper and coffee to motor oil and clothing.

10 Things That Can Ding Your Social Security Payments
10 Things That Can Ding Your Social Security Payments

Here are 10 things that could mean less money in your pocket during retirement.

This Online Bank Rated Best for Second Year in a Row
This Online Bank Rated Best for Second Year in a Row

This bank pays interest without charging monthly fees, but there’s a downside.

15 Amazon Purchases That We Are Loving Right Now
15 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

Brace to Pay More for These 26 Prescriptions in 2020
Brace to Pay More for These 26 Prescriptions in 2020

More than 600 drugs — including these commonly prescribed meds — have seen price hikes so far this year.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
11 Things Retirees Should Always Buy at Costco
11 Things Retirees Should Always Buy at Costco

This leader in bulk shopping is a great place to find discounts in the fixed-income years.

Over 50? The CDC Says You Need These 4 Vaccines
Over 50? The CDC Says You Need These 4 Vaccines

Fall is the time to schedule vaccines that can keep you healthy — and even save your life.

11 Senior Discounts for Anyone Age 55 or Older
11 Senior Discounts for Anyone Age 55 or Older

There is no need to wait until you’re 65 to take advantage of so-called “senior” discounts.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

8 Things You Can Get for Free at Pharmacies
8 Things You Can Get for Free at Pharmacies

In this age of higher-priced drugs and complex health care systems, a trip to the pharmacy can spark worry. Freebies sure do help.

These Are the 4 Best Medicare Advantage Plans for 2020
These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

The 10 Most Commonly Stolen Vehicles in America
The 10 Most Commonly Stolen Vehicles in America

A new model parks atop the list of vehicles that thieves love to pilfer.

9 Deep Discounts Available on Amazon This Friday
9 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

20 Things That Are Actually Worth Stockpiling
20 Things That Are Actually Worth Stockpiling

You don’t need a year’s supply of toilet paper to survive an outbreak, but consider stocking up on these items.

10 Reasons Why You Should Actually Retire at 62
10 Reasons Why You Should Actually Retire at 62

If you can, here are several good reasons to retire earlier than we’re told to.

Do This in the Car If You Want to Avoid COVID-19
Do This in the Car If You Want to Avoid COVID-19

It takes just seconds to take this simple preventive measure.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

15 Products You Need — Even If You Didn’t Know It
15 Products You Need — Even If You Didn’t Know It

Discover some must-have products on Amazon that you didn’t even know you were missing.

14 Things That Are ‘Free’ With Medicare
14 Things That Are ‘Free’ With Medicare

These services could save you money and help prevent costly health problems.

26 States That Do Not Tax Social Security Income
26 States That Do Not Tax Social Security Income

These states won’t tax any of your Social Security income — and in some cases, other types of retirement income.

5 Keys to Making Your Car Last for 200,000 Miles
5 Keys to Making Your Car Last for 200,000 Miles

Pushing your car to 200,000 miles — and beyond — can save you piles of cash. Here’s how to get there.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.