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Obama Admin to Regulate Payday Loans

Obama Admin to Regulate Payday Loans

Regulate all the things!

The nation’s payday and auto title lenders are now the latest target of the Obama administration in an effort to transform the relationship between private lending companies, their borrowers, and the government. For the very first time, high-interest lending companies will face regulations set forth by the federal government.

Credit of this type typically involves an immediate, short-term loan of a few hundred dollars that comes with a high interest rates and lending fees. When costs are combined, the annual interest rate of these loans often calculate to around 300%.

Until now, regulation of this $39 billion industry had been left up to the states. This week, the Consumer Financial Protection Bureau (CFPB), an agency conceived by Sen. Elizabeth Warren, announced the beginnings of a regulatory framework intended to protect the roughly 12 million low-income households borrowing from these often described “predatory” lenders.

Rules proposed by the CFPB will require lenders to assess the borrower’s ability to pay back the loan before an exchange of money takes place. Payday lenders fear this step will make it more difficult to roll over loans, a frequent practice of high-interest lenders that usually results in the hiking of the lender’s borrowing fees.

Critics of the new regulations claim the requirements would be detrimental to lenders that rely on high fees and interest rates that make a short-term loan profitable. They would “largely eliminate the small-dollar short-term lending industry,” said Jamie Fulmer, a representative for payday lender Advance America.

The Obama administration’s plans to regulate what has traditionally been left up to the discretion of the states don’t stop there. The Wall Street Journal explains:

The payday rule comes a month after the CFPB finalized a proposal to make it easier for consumers to file class-action lawsuits against financial institutions, by barring mandatory arbitration. A month before that, the Labor Department announced a plan to overhaul retirement-savings advice, stoking ire from the industry and prompting a lawsuit this week from big-business trade groups seeking to overturn the measure.

The CFPB plans to roll out in the coming months new rules governing prepaid cards, bank overdraft fees and debt collection. The agency indicated in this week’s payday announcement that still more rules are coming for that sector, saying it was “launching an inquiry into other potentially high-risk loan products and practices that are not specifically covered by the proposed rule.”

Whether or not the new payday loan regulations will protect lower-income individuals in the long run remains to be seen. If critics like Fulmer are correct, however, America has a boom in the loan shark industry to look forward to.

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Comments

What a bunch of fucking hypocrites.

‘Require them to assess the lender’s ability to pay back the loan’.

Funny. I remember when mortgage lenders doing a little thing like ‘assessing the lender’s ability to pay the loan’ was racist.

And like so many things Democrats do to ‘help’ poor people, this is not a good thing. People that use payday loans are already stupid. Removing their ability to get respectable payday loans means the idiots will get Unrespectable loans from other sources.

Micro-managing us from the time we get up until we go to bed, from cradle to grave and 24/7. Leave nothing unregulated since our betters are better at keeping us rubes safe.

filiusdextris | June 2, 2016 at 4:28 pm

I have no problem with federal baselines in this industry, but it should be through an act of Congress not an illegal presidential executive action.

    ss396 in reply to filiusdextris. | June 3, 2016 at 2:39 pm

    The CFPB isn’t subject to Congressional oversight. It was created (by Congress!) under the Fed, who is also not subject to Congressional oversight. So they can kinda do what they want.

    Lack of oversight was one of the main objections to its creation. Way to go, Congress.

Intrastate commerce should not be regulated by the federal government. The Commerce Clause prohibits it. Unfortunately, we have bad SCOTUS decisions like Wickard v Filburn” that made crap like this possible.

Regulating Debt Collection practices has been a shared Federal – State responsibility since the FDCPA was passed in the 1970s.

There are payday loan companies located off shore that use unscrupulous tactics — such having a borrower tender a postdated check and then threatening arrest if the check is not made good.

Since many of these companies are offshore there is a Federal interest.

How about the…Obama Admin Regulate government spending and the ability to repay the national debt!

Eastwood Ravine | June 2, 2016 at 5:05 pm

This is rich. The federal government is going to impose regulations that if the government itself went to apply for a loan, it would probably be denied.

First Team Obama make it impossible for banks to offer free checking accounts…to protect the poor.

Now Team Obama will make the remaining sources of short-term help to the working poor more difficult for those customers to find.

Brilliant

    rabidfox in reply to Howard Roark. | June 2, 2016 at 8:44 pm

    My bank offers free checking accounts. Nor have I been charged any fees on my checking account. I don’t see where Obama has made it impossible for banks to offer free checking accounts.

The regulation of consumer debt collection practices has been a shared Federal-State responsibility since the 1970s when the FDCPA was passed.

Some payday loan companies have been accused of unsavory practices, including demanding post dated checks and threatening arrest if there are not sufficient funds to cover a loan.

Most of these firms are engaged in interstate commerce and are therefor subject to Federal Regulation. The only question is whether CFPB has regulatory authority without further legislation. On the surface the FDCPA would not apply to payday loan companies.

(By the way — the Supreme Court in recent decisions has been coming down hard on class action lawsuits).

Liquor stores and nail salons hurt hardest.

They are matched set.

None of this is to protect the consumer, it’s to protect the Brick and Mortar banks.

    ss396 in reply to genes. | June 3, 2016 at 2:41 pm

    And feelz goodz for some hard luck cases that someone heard about. Virtue signalling, nothing more.

Albigensian | June 3, 2016 at 10:05 am

Some borrowers have an astoshingly high discount rate: that is, they’d rather have ten dollars today than one hundred dollars next week.

So long as that’s the case, lenders will find a way to service that market. Just as when state usury laws placed limits on installment credit interest rates, merchants responded with Rent-to-Own, and slum stores (hello, Fingerhut!) which offer easy, reasonably priced credit that is paid for with prices that are far higher than what one can easily obtain elsewhere.

Thus, should Payday loans be regulated out of existence I don’t doubt that alternatives will quickly appear. And, although these may be even more injurious to those with the poor judgement to use them, they just might be legal. For where markets exist, creativity is invariably brought to bear to serve them.

(And, yes, the constitutional basis for regulating intra-state commerce seems mighty thin indeed, but, that bridge was crossed a long time ago.)

healthguyfsu | June 3, 2016 at 12:48 pm

What has credit scoring not been deemed racist yet by the progressives?

Protects the big banks. Banks charge huge overdraft fees now. If a poor person needs a loan to make until their next paycheck in a week, they can borrow a $100 at the corner legally and pay back $110 in a week. Cost $10. Alternative is write an NSF check for $100, pay $35 overdraft penalty to big bank, face possible warrant for check kiting. Easy for us to look down on this clientele, but payday loans offer a needed service less expensively than banks. The Feds should stay out and quit supporting the big banks at the expense of the poor.

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