New agency could target payday lenders
Living paycheck-to-paycheck is a reality for many Americans.
With few options to borrow money from a bank or credit union, cash-strapped consumers turn to payday lenders to access cash.
These businesses make short-term loans at outrageous annual interest rates of 300% or more, putting desperate people further into debt.
But here comes the Consumer Financial Protection Bureau, the new federal watchdog designed to take on lending practices considered abusive or fraudulent.
Consumer groups are expecting the agency to take on the payday loan industry, The Wall Street Journal reports.
Payday loan executives are paying attention to this group as new rules and regulations to include increasing transparency of loan terms and a cap on interest rates could be on the horizon.
Those opposed to payday lending practices have reason to hope.
Elizabeth Warren, the Harvard professor tapped by President Obama to set up the bureau, has raised concerns about payday lending practices.
From the Journal:
In written testimony to the House Financial Services Committee in 2009, Warren highlighted a survey that found that payday loan customers are aware of finance charges but often unaware of annual percentage rates. And in her 2008 "Making Credit Safer" article in Harvard Magazine, Warren accused a lender of trying to hide a 485.450% interest rate.
Many consumer advocates argue that payday loan interest rates should be capped at 36%, just as they are for military families.
Online operations, in fact, might be the first target.
Payday lenders with a store location have interest rate caps established by the state in which they operate. But lenders that operate online can avoid these caps and are considered by some more predatory.
The Consumer Financial Protection Bureau may level the playing field by regulating the entire industry both online and brick-and-mortar establishments.
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