During a recent lunch hour in Springfield, Virginia, a medical assistant named Angela walked into an Advance America branch in a mall and requested a loan. She borrowed $ 300 and promised to pay it back within 30 days, with an additional $ 73 in interest and fees.
This loan would help cover a family trip to New York City, said Angela, who has asked NPR not to use her last name for privacy reasons. She says she prefers payday loans because she doesn’t trust herself with credit cards and prefers not to ask her family for help.
“Everyone has a hard time. So no need to ask,” she said.
It was convenient and fast. All Angela had to do was show her ID and write a check dated the day the loan was due. To get her first loan, she brought a bank statement and pay stub, but took a few more loans since that first loan – about two a year.
Angela is an unusual payday borrower. In a 2014 report, the Consumer Financial Protection Bureau found that half of payday loans are in a sequence of at least 10 loans and that the costs are skyrocketing.
A ruler established by the CFPB under President Barack Obama, it would be more difficult for Angela to get her payday loan. Under the proposed rule, which did not come into effect, lenders would have to determine that borrowers could afford to repay their loans. Now the office has proposed repeal the rule. This is the first large-scale movement of Kathy kraninger, who was confirmed as director of CFPB at the end of 2018.
“We’ve been working really hard on payday loans, and it’s so damaging to so many communities, and so we’re absolutely looking at that and we’re focusing on that and see what we can do with that,” Waters said on Wednesday. .
She spoke after reintroducing the Consumers First Act, which was introduced in October 2018 and orders the CFPB to do its job, including maintaining adequate staff and reinstating the app for student and military borrowers. The bill could be passed by the Democratic-controlled House, but it is unlikely to pass in the Senate, where Republicans hold a majority.
The payday lending industry and its advocates say the CFPB under Kraninger and his predecessor, Mick mulvaney, corrected government excesses that threatened vital commercial service.
“We are giving consumers across the country the ability to access cash when they need it most,” said Jamie Fulmer, senior vice president of public affairs at Advance America. The South Carolina-based company has 1,900 branches across the United States. The company donated to Trump’s inaugural committee.
Scott Astrada, director of federal advocacy at the Center for Responsible Lending, a consumer advocacy group, says the industry practices predatory lending and needs to be brought under control.
“The very model of the loan is to withdraw so much money from the borrower’s bank account until that inevitable default,” says Astrada.
Angela is convinced that she can repay her loan, even if the interest is at an annual rate of 300%.
Richard Cordray, the former director of CFPB, says the agency’s mission has changed.
“The new CFPB leadership has been much less aggressive in doing things that strongly push the industry to change in ways that help consumers,” he says.
Democrats, who took control of the House in January, oppose the repeal of the payday loan rule. Consumer advocates say the rule is vital. The same goes for veterans groups and the NAACP.
“With little accountability for their actions, payday lenders have long attacked communities of color and drained them of their hard-earned savings,” Hilary Shelton, director of the NAACP’s Washington office, said in a statement on last month.
Quyen Truong, who was CFPB deputy general counsel under Obama, says banks have stricter criteria than other lenders for small dollar amounts. Sometimes borrowers don’t have enough credit to qualify for credit cards.
Under the current rules, she says, “some segments of the population may not have very good alternatives to the payday product.”
Truong says the rule would have endangered the industry and some lenders had already closed their doors anticipating the impact.
Angela, the borrower, says she’s thankful the rule doesn’t take effect.
“I’m glad they have that. I can actually get a loan and be able to pay them off easily and have some extra money,” she says.
She says she pays off her loans sooner and gets a lower rate; in Virginia, payday borrowers can get a discount for prepaying their loans. Fulmer from Advance America says that in most states that allow payday loans, there are fixed fees that don’t change whether they get paid sooner or later.
But CFPB’s own research shows that many borrowers are not so savvy. For now, they can continue to borrow, but they run the risk of getting trapped in debt.
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