The CFPB and Payday Lending

What, if anything, should the Consumer Financial Protection Bureau do to regulate payday lending? Nathalie Martin has this post at Credit Slips in which she notes that although the CFPB cannot cap interest rates (which she suggests would be ill-advised anyway), the agency should consider a number of regulatory options, including:

1. A National database for all loans (and if ... [the loan is not in the database, the loan] is not enforceable).
2. A strict limit on rollovers and total loans per year per customers.
3. Disclosures that consumers can read and understand (not typical TILA garbage), given in the store, in huge print on the documents, and pointed out and repeated orally by the clerk.These should be written or vetted by someone who teaches school at the level of the average reader in America.
4. No enforcement of mandatory arbitration clauses.
5. No enforcement of mandatory class action waivers.
6. Rules against certain kinds of advertising.

Comments

[payday loans lenders]

Superb quality content. The payday loans discussion is quite better and is effective

[cash loan]

let all states allow for payday loans. I prefer having these lenders both online and off.

[Richard Isacoff]

While all of the suggested rules/disclosures in the posting make sense, none will be enacted or implemented. The laws already prevent usury on a state by state basis. No one is enforcing. Disclosures will not deter desparate people from borrowing with the mindset "just until my next paycheck". In fact allof the rules are worthless if there is no enforcement.

The second problem is that most of these companies are off-shore and "immune" from state action directed at them. They will continue to make loans for whatever "rate" or "premium" they can and there is no one to stop them.

The Federal law that would help, although their lobby is too strong, would be

1.to state that after "X" rollovers of the loan, only the original principal amount would be collectable.

2. No direct debits (EFT) will be permissible after 30 days from the 1st advance for any of the loans owed. Financial institutions MUST treat the request from a borrower to her/his "Bank" to stop such Debits shall be treated as a "Stop Payment" and funds allowed debited after such time shall be restored to the account holder's account AT THE BANK'S EXPENSE

3. For those companies that are U.S. based, they must be licensed (similar to the Nat'l Mtge Broker Registry). The lack of a license makes all outstanding loans void - the borrowers keep the funds.

I believe that these few regs which are easily enforced by even a state Court would curtail the problem