Need money fast? Whatever you do, don’t get a payday loan
The Trump Administration has turned lenderd loose on cash-strapped consumers
Consumer advocates call it “outrageous” but the emaciated Consumer Financial Protection Bureau is looking the other way when it comes to enforcing regulations governing payday loans and other high-interest schemes. That means consumers should run, not walk away from the expensive loans.
The CFPB will not prioritize enforcement of payday loan regulations, focusing instead on "pressing threats" to consumers.
Consumer advocates express outrage, claiming this decision allows payday lenders to exploit financially vulnerable individuals.
Reports reveal that payday lenders drained over $2.4 billion from low-income borrowers in fees last year, with many borrowers falling into a cycle of debt.
In its haste to please the financial services industry, the CFPB – now a shadow of its former self – recently announced it would stop enforcing Biden-era regulations on payday and car title loans, the super-high-interest loans that trap desperate consumers in a cycle of debt that can be nearly impossible to escape.
“It’s outrageous that the CFPB will not enforce the law that prohibits payday lenders and other 200% APR lenders from continually debiting people’s accounts, subjecting them to multiple NSF and overdraft fees,” said Lauren Saunders, associate director of the National Consumer Law Center.
The bureau also announced it plans to revoke the Buy Now, Pay Later interpretive rule, again igniting backlash from consumer advocates. Along with car title loans, the three lending schemes are considered predatory and are banned in numerous states.
What’s wrong with the loans? Simply put, they’re short-term, high-interest loans that can easily exceed 200% per year in interest. Consumers often can’t pay the loan when it’s due so they roll it over, adding another batch of interest. In a few short weeks, the total amount owed has ballooned and is nearly impossible to pay off.
How to avoid payday loans
There’s no easy answer to the no-cash problem that many hard-working people face but Rule No. 1 should be to avoid payday loans like the plague. There are some options, although they’re admittedly not pleasant:
Join a credit union. They’re non-profit and usually locally owned. They charge infinitely less interest than a payday loan.
Try to negotiate. Talk to your creditors, assure them you want to pay and ask to set up a payment plan. Don’t rule this out. Most businesses will work with you.
Borrow from family and friends. Of course you don’t want to do this, but it may be the best option.
Get a second (or third) job. Drive an Uber, get a gig with DoorDash, do some pet-sitting, ask a local store where you’re a regular for a part-time job.
Find a community agency, church or volunteer group that can loan or give you enough to keep the wolf away. These exist nearly everywhere. Ask around!
Sell or pawn something. You can replace just about anything but money paid in over-the-top interest is gone forever.
Remember, you’re not alone. Everyone has money problems now and then. Learning to handle them is worth the trouble.
On that last point, the biggest objection to these loans is that their victims are mostly the working poor, as well as servicemembers and the disabled and elderly.
As Nadine Chabrier from the Center for Responsible Lending put it – the Trump Administration is giving payday lenders a "free pass" to exploit those already in trouble. She points to studies showing that payday loans, often marketed as quick financial solutions, can entrap borrowers in a cycle of debt due to their high interest rates, averaging nearly 400% APR.
In a statement, the CFPB claimed that it is cutting back on payday loan enforcement because it wants to support servicemembers, veterans, and small businesses. But consumer advocates highlight that military personnel are particularly vulnerable to payday lending practices, with studies showing they are three times more likely than civilians to use these loans.
The CFPB's recent actions come amid a broader trend of loosening regulations on the payday lending industry, which is already outlawed in many states due to its predatory nature. As lawmakers face pressure from both sides, consumer protection advocates continue to call for stronger regulations to safeguard against exploitative lending practices.
Key statistics
Here are some key statistics about payday loans:
1. Loan Volume: In 2022, payday lenders issued over 20 million loans, totaling nearly $8.6 billion.
2. Fees Collected: Payday lenders collected approximately $2.4 billion in fees from borrowers in the same year.
3. High Interest Rates: The average Annual Percentage Rate (APR) for payday loans is nearly 400%, which is significantly higher than traditional loan products.
4. Re-borrowing Rates: Research indicates that nearly half of all payday loans are part of a sequence of at least 10 consecutive loans, leading to a cycle of debt for many borrowers.
5. State Disparities: Texas accounted for over $1.3 billion in payday loan fees alone, which is more than half of the national total. Other states with high payday loan fees include Florida and California.
6. Military Borrowing: Studies show that active-duty military personnel are three times more likely to use payday lenders compared to civilians, with a significant percentage using these services more than once per year.
Some states step up
About 20 states have tried to rein in payday loans but their efforts are often stymied by the Internet, which makes it easy for predatory lenders to rope in victims from anywhere, even states where the loans are illegal.
State measures include:
1. Interest Rate Caps: At least 20 states and Washington, D.C., have implemented strong consumer protections by capping payday loan interest rates at 36% APR or lower. These caps help prevent predatory lending practices and reduce the risk of borrowers falling into a debt cycle.
2. Bans on Payday Lending: In 18 states and Washington, D.C., payday lending is either banned outright or heavily restricted, making it illegal for lenders to issue these high-cost loans. States such as New York and New Jersey have effectively eliminated payday lending by enforcing strict regulations.
3. Regulatory Variance: States like Texas and Florida have seen significant payday lending activity, with high fees and little in the way of protective regulations. For instance, Texas has no interest rate cap, allowing lenders to charge exorbitant fees that contribute to the state's high payday loan volume.
4. Online Lending Growth: Some states have seen a rise in online payday lending, which often circumvents state regulations. For example, California has experienced a dramatic increase in the proportion of online payday loans, raising concerns about accessibility and borrower protection.
5. Military Protections: The Military Lending Act provides additional protections for active-duty service members and their dependents, including a cap on interest rates and restrictions on certain loan types, including payday loans. This legislation aims to prevent predatory lending practices that disproportionately affect military personnel.