Move To Pull Consumer Protection Rule Heightens Debate Over Payday Lending

Feb 2011
17,484
11,986
The formerly great golden state
#1
Move To Pull Consumer Protection Rule Heightens Debate Over Payday Lending


A rule drawn up by the CFPB under then President Barack Obama would make it harder for Angela to get her payday loan. Under the proposed rule, which did not take effect, lenders would have to determine that borrowers could afford to repay their loans. Now the bureau has proposed rescinding the rule. It is the first high-profile move by Kathy Kraninger, who was confirmed as the CFPB's director in late 2018.

"The very model of the loan is to take out as much money from the borrower's bank account until that inevitable default," Astrada says.


Angela is confident she can pay her loan back — even though the interest works out to an annual rate of 300 percent.

I can see two sides to this issue: On the one hand, the payday loan people are usurers who are preying on the poor, and would best be shut down. On the other hand, if people are foolish enough to borrow money at 300% interest, then that's their decision.

What's your opinion, rein them in, or let them be?
 

Ian Jeffrey

Council Hall
Mar 2013
75,166
43,883
Vulcan, down the street from Darth Vader
#2
Predatory lending should be illegal. In the alternative, interest rates on loans (any loans) should be sharply limited. The prey may be foolish and stupid, or may simply be desperate, and desperation is what makes them easy prey.
 
Sep 2014
4,842
1,509
South FL
#3
If payday lending really is predatory as critics suggest it is, the critics can quite literally put their money where their mouths are and immediately improve the lot of the poor by entering this line of business, directly or indirectly of course. Surely critics could easily get some money to lend at far lower rates of interest to thousands of grateful customers seeking payday loans, no? If the critics are correct, not only would the critics earn profits from lending money (and then get even more funds to loan out!), the critics will also, without any government intervention whatsoever, drive the 'predatory' lending practices out of the market that they despise. Of course this goal will even be achieved by expanding access to credit, rather than restraining (as many critics suggest by banning or restricitng the business) the ability of poor people to choose to borrow for short-term financing needs. Of course banning it doesn't actually make it 'not happen' it merely ensures that it won't happen 'above board' -- the loansharks will still exist and since its illegal, they'll enforce their contracts with violence.
 

Ian Jeffrey

Council Hall
Mar 2013
75,166
43,883
Vulcan, down the street from Darth Vader
#4
If payday lending really is predatory as critics suggest it is, the critics can quite literally put their money where their mouths are and immediately improve the lot of the poor by entering this line of business, directly or indirectly of course. Surely critics could easily get some money to lend at far lower rates of interest to thousands of grateful customers seeking payday loans, no? If the critics are correct, not only would the critics earn profits from lending money (and then get even more funds to loan out!), the critics will also, without any government intervention whatsoever, drive the 'predatory' lending practices out of the market that they despise. Of course this goal will even be achieved by expanding access to credit, rather than restraining (as many critics suggest by banning or restricitng the business) the ability of poor people to choose to borrow for short-term financing needs. Of course banning it doesn't actually make it 'not happen' it merely ensures that it won't happen 'above board' -- the loansharks will still exist and since its illegal, they'll enforce their contracts with violence.
That is ridiculous. You are suggesting a private-sector solution for something that should be illegal. The nice thing about illegal contracts is that the courts will not enforce them, and those who enforce them by violent means (or attempt to do so) go to jail for it. Making such contracts legal (apart from the violent enforcement part) and judicially enforceable does not really solve the problem; it simply seeks to make predatory lending respectable - and it is not, no matter which way you slice it.
 
Likes: Leo2
Oct 2014
32,357
5,840
C-A-N-A-D-A-Eh
#5
I used to live off those check cashing places... Till I did the math to realize how much it costs to not have a bank account.
 
Oct 2014
32,357
5,840
C-A-N-A-D-A-Eh
#7
300% interest is some pretty compelling math. Do you have those places in Canada as well then?
Wait. Yes, they do have the payday loans / check cashing places and yes, they are as predatory in the loans.

I was referring to the cost of 5-10$ to cash a check, rather than the cost to maintain a bank account but having to wait a week for the check to clear.... that was a little bit trickier of math, and harder to justify when a 2 week paycheck might last a week and a half.
 
Feb 2011
17,484
11,986
The formerly great golden state
#8
Wait. Yes, they do have the payday loans / check cashing places and yes, they are as predatory in the loans.

I was referring to the cost of 5-10$ to cash a check, rather than the cost to maintain a bank account but having to wait a week for the check to clear.... that was a little bit trickier of math, and harder to justify when a 2 week paycheck might last a week and a half.
Yes, that charge to cash a check is pretty outrageous as well, particularly when a checking account at the local credit union can be had for free.

So, it's not just the poor of the US that's being ripped off, but the ones in Canada as well. I wonder if this is a more widespread problem than we know?
 
Jul 2013
54,977
59,261
Nashville, TN
#9
Yes, that charge to cash a check is pretty outrageous as well, particularly when a checking account at the local credit union can be had for free.

So, it's not just the poor of the US that's being ripped off, but the ones in Canada as well. I wonder if this is a more widespread problem than we know?
I am sure it is worldwide where it is not illegal, and even where it is illegal loan sharks still do it. Like Ian said, the desperate or foolish will fall easy prey to this scam. And as Publius implied, the sheep are there to be sheared, so why not do it.
 
Oct 2014
32,357
5,840
C-A-N-A-D-A-Eh
#10
Yes, that charge to cash a check is pretty outrageous as well, particularly when a checking account at the local credit union can be had for free.

So, it's not just the poor of the US that's being ripped off, but the ones in Canada as well. I wonder if this is a more widespread problem than we know?
Looking back, yes... in the moment, it was more important to get cash asap, because the bank account meant having to wait a week.

They always wind up arguing that the loans are intended as short term, but the terms are so abusive that once you get one, you need a loan to cover the first loan, etc...
 

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