End Predatory Practices – NYTimes.com


The CFPB is expected to create strict new standards for payday loans, which are often deceptively sold as low-cost solutions to the cash flow problems of low-income households.

New rules must prevent predatory lenders from pushing consumers at increased risk of losing bank accounts, their foothold in the traditional financial system.

In reality, the majority of borrowers ultimately have to turn to many of the same options that are available to them at the start of their problems to get out of the payday debt trap: they rely on friends or family or downsize others. expenses. Some receive a tax refund or some other influx of money that would have covered the shortfall. Even still, with interest rates that are on average 391 percent, payday borrowers get into debt so far that loans often undermine any hope of regaining financial stability.

The new rules must include limits on repeat borrowing and the duration of debt to prevent predatory lenders from pushing consumers to be at increased risk of losing bank accounts, their anchoring in the traditional financial system and going bankrupt.

The CFPB should also put in place specific protections when lenders have access to borrowers ‘bank accounts: with direct access to borrowers’ bank accounts, payday lenders are able to withdraw funds as soon as a paycheck arrives. , which leaves little to cover critical needs such as food and utilities. This payment status allows lenders to focus only on their salary and not on the actual ability to repay the loan while facing other day-to-day expenses.

Payday lenders have a long history of dodging regulations that target abusive practices. To ensure that any new rule is effective, whether the loans are made online, in a store, or in a bank, it must be comprehensive to protect against evasion attempts. It cannot allow any loophole or sanction expensive and poorly subscribed loans. The CFPB must add protections for borrowers and not undermine strong and existing state laws that have helped curb the debt trap.

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