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Valley News – Column: A public alternative to predatory payday loans


Published: 03/11/2019 10:30:20 PM

Modified: 03/11/2019 22:30:24 PM

In early February, the Consumer Financial Protection Bureau announced plans to rescind a rule requiring payday lenders to accurately assess whether borrowers can repay them. The Obama-era regulations were intended to curb some of the notoriously predatory practices in the short-term lending industry.

In recent years, the once-specialty industry has exploded into a $ 46 billion giant with more than 20,000 lenders. Its massive growth has come at the expense of Americans who need cash sooner than it arrives – for example, when rent is due on Monday but pay is only on Friday.

Loans, typically ranging from $ 100 to $ 1,000, are made at average annual interest rates of up to 400%. In some cases, the rate approaches 800%.

If the loans are repaid quickly, the interest is not grueling. It is when consumers cannot do so that vulture wear begins.

In such cases, borrowers often pay only the minimum, say $ 40 on a $ 250 loan. This renews (or “renews”) the loan but, more importantly, does not reduce its principal. The borrower is $ 40 less and owes as much as before.

A 2014 review of 12 million payday loans by the Office of Consumer Financial Protection (the same ministry that is now proposing deregulation measures) found that 80% were either renewed or continued with short-term loans. separate, that is, take out a payday loan. to pay off a payday loan.

When borrowers cannot repay over an extended period of time, the result can be ruinous. A Kansas City man initially borrowed $ 2,500 and ended up owing $ 50,000 and lost his house.

As the recent partial government shutdown has highlighted, many Americans are struggling to navigate even the lightest of financial hurdles. A 2017 survey found that nearly four in five Americans live from paycheck to paycheck. In February, the Federal Reserve Bank of New York reported that a record 7 million Americans are at least 90 days late in paying for their cars.

Amid what President Donald Trump in a tweet called “America’s greatest economy,” it’s clear that blanket measures are needed to prevent Americans from drowning in a sea of ​​debt. insurmountable.

In the short term, we need to find ways for cash-strapped citizens to access small-scale, short-term loans without the risk of large-scale, long-term hardship at the hands of predatory lenders.

A recent article by American News and World Report who identified seven ways to avoid payday loans included bad ideas like borrowing from family and friends and against 401 (k) retirement plans. A much better way forward would be widely available low interest loans with reasonable fees rather than rapacious.

And the way to do it is simple: States or municipalities should create these loan programs.

Government-funded loan pools can provide short-term, low-interest loans in a way that no private lender can or will.

Municipal or state loan programs could incorporate some of the same consumer sustainability standards that the Bureau of Consumer Financial Protection suddenly deems unnecessary under Trump. They could access a potential borrower’s ability to repay and prohibit those who default from repaying their future loans. Defaulting borrowers could also be fined – fairly, without a $ 300 loan becoming a legal $ 3,000 usurious loan transaction.

Ten years ago, taxpayers spent billions to bail out the entire global banking system. We can succeed in loaning a few hundred dollars to a working single mom until her next paycheck arrives. Short-term, low-interest public loan pools are the best possible solution and should be explored in cities and states across the country.

Christopher Dale (@ChrisDaleWriter) writes about society, politics and sobriety issues. This column was written for The Progressive Media Project, affiliated with The Progressive magazine.

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