Newspaper article The Christian Science Monitor

Proposed Payday Loan Rules: Consumer Protection or Unnecessary Oversight?

Newspaper article The Christian Science Monitor

Proposed Payday Loan Rules: Consumer Protection or Unnecessary Oversight?

Article excerpt

President Obama took to the airwaves in his weekly radio address to talk about so-called payday lenders, the storefronts, often in low-income areas, that offer short term cash advances, for a price

Millions of Americans take out these loans every year. In Alabama, where I visited this week, there are four times as many payday lending stores as there are McDonald's, the President said on the air. But while payday loans might seem like easy money, folks often end up trapped in a cycle of debt. If you take out a $500 loan, it's easy to wind up paying more than $1,000 in interest and fees.Mr. Obama went on to praise the work of the Consumer Financial Protection Bureau, which unveiled proposed rules on Wednesday designed to reign payday lenders in. The rules will be presented to a panel of small lenders for review.

Consumers needing quick cash have come to rely on these short- term loans. But the debts, which typically carry annual interest rates in the triple digits, can quickly get out of hand, forcing borrowers to take out additional loans and trapping them in a perpetual cycle of debt, as NPR reports

Today the payday loan industry boasts some 22,000 storefronts spread across 35 states, holding an estimated $27 billion in loans, according to the Center for Responsible Lending, a nonprofit that seeks to curb what it sees as predatory lending.

The new rules would require lenders to verify each would-be borrower's income and financial obligations, including other loans. The rules would also limit the number of times loans can be renewed or rolled over.

According to the Pew Charitable Trust, 12 million Americans used payday loans in 2010. The report found 69 percent of this group used payday loans to pay for expenses such as utilities, rent, credit card bills, or food. Borrowers took out an average of eight loans simply to cover pay for the expenses,turning each individual loan around in 18 days, according to the report. …

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