New payday loan regulations are coming, from the
Consumer Protection Finance Bureau. (CPFB)
I am no fan of payday loans, which amount to legal loan sharking.
However, I am sceptical of government rules to protect us from ourselves.
Payday loans are supposed to hold you over until, well, payday.
Small amounts of money for short term emergencies.
Now, the best way to prepare for life’s inevitable short term emergencies is to save, to have an emergency fund of $500 or $1,000.
Of course, most of us cannot do that, with something like half of Americans $400 away from trouble if they miss a paycheck.
And, many of my bankruptcy clients have payday loan problems.
My clients tend not to have financial planning skills. Not that mine are all that great, mind you.
So, they borrow $400 for a car repair, but, do not have the money to pay 2 weeks later when that payday loan comes due. Maybe the payment bounces, because the payday loan lender reached into it for payment and the cupboard was bare.
Now the consumer is stuck with bounced check bank fees, plus continuing exorbitant interest on that payday loan, or, she takes out another payday loan to pay off the first one.
“Too many borrowers seeking a short-term cash fix are saddled with loans they cannot afford and sink into long-term debt,” CFPB Director Richard Cordray said in a prepared statement.
Cordray compared the situation to getting into a taxi for a crosstown ride and finding oneself stuck on a “ruinously expensive” trip across the country. He said the proposal would aim to “prevent lenders from succeeding by setting up borrowers to fail.”
The Wall Street Journal is paywalled, but points out that, obviously, compliance with new regulations cost money.
the complex proposal, which runs more than 1,500 pages, makes it too easy for payday lenders to find loopholes and that it would deter banks from entering the market to offer small, short-term loans.
The CBS news story linked to above cites estimates of 16,000 payday loan storefront operations and hundreds more online. The vast majority of which will be put out of business if the proposed rules are enacted.
The Journal points out that Obama White House buddy Google will be the beneficiary, as it will be, in effect, in the payday loan business online. And, well, Google, with its billions, can afford to comply with the proposed regulations a lot easier than a storefront payday loan operation.