The Consumer Financial Protection Bureau releases new rules governing "payday" lending - high interest loans that impact low-income communities.
The Consumer Financial Protection Bureau releases new rules governing "payday" lending - high interest loans that impact low-income communities. Payday loans often carry interest rates over 300% and give lenders direct access to a borrower's bank account. The new regulations would require lenders to assess a borrower's ability to repay loans and meet basic living expenses. The rules are open for public comment until September 14.
"Nobody should take out high-interest loans that can make a bad economic situation even worse. These new payday rules mark an important step forward for responsible lending and borrowing." stated Eric LeCompte, executive director of the religious anti-poverty coalition Jubilee USA. "We also need strong state laws and we need Congress to support these rules."
Under the new regulations, payday lenders would be prevented from directly withdrawing funds from a borrower's bank account under certain circumstances. The Bureau estimates that one-sixth of borrowers who had funds directly removed from their bank account lose that account due to overdraft violations and shortage of funds.
"Some borrowers lose their bank accounts because of overdrafts when payday lenders directly extract funds," noted LeCompte.
According to the Bureau, about half of the 12 million Americans who borrow from payday lenders have to take out a second loan to pay off the initial loan. Members of Congress have introduced legislation to delay the new regulations. Consumer advocates and the payday lending industry continue to debate proposed laws at the state level, with 24 states passing significant restrictions.
"Some payday lending is actually predatory lending," remarked LeCompte. "Predatory practices must be discouraged and these rules are a good first step."
Jubilee USA Network is an alliance of more than 75 US organizations and 550 faith communities working with 50 Jubilee global partners. Jubilee USA builds an economy that serves, protects and promotes the participation of the most vulnerable. Jubilee USA has won critical global financial reforms and more than $130 billion in debt relief to benefit the world's poorest people. www.jubileeusa.org