Congress considers going easy on predatory lenders

The New York Times Editorial Board:

“The payday lending industry is pressing its friends in Congress to repeal rules that shield borrowers from short-term loans that trap them in debt at interest rates of 400 percent or more. The rules were issued last year by the Consumer Financial Protection Bureau in a last gasp of consumer financial protection before President Trump appointed Mick Mulvaney as its new chief.

The new administration is openly hostile to the rules — which become effective in August 2019 — and is clearly looking for ways to undermine them. Meanwhile, bills introduced in both the House and the Senate would repeal the rules outright, opening the door for the return of lending practices that make working-class families poorer.

The payday industry advertises itself as a source of “easy” credit for workers who run short of money before their next paycheck and take out loans that are typically supposed to be repaid within two weeks. But there is nothing “easy” about this arrangement, as the consumer protection bureau showed in a study of more than 12 million loans. Among other things, the research revealed that the industry relies on people who can almost never repay on time, which usually means they borrow over and over again.

Among the study’s findings: Eighty percent of payday loans were rolled over or renewed within two weeks; three out of five loans were made to borrowers who paid more in fees than they borrowed; four out of five borrowers either defaulted or renewed a loan over the course of a year; and one in five payday borrowers — including elderly people on fixed income payments — remained mired in debt for the entire year.

As they press for federal legislation to overturn the rules, the lenders have been lobbying state legislatures to expand their right to issue payday loans for longer than 45 days, loans that would not be covered by the regulations.

The industry spent lavishly in Florida to pass a law that will allow an annual rate of nearly 300 percent on a three-month loan of $1,000, according to an analysis by the Pew Charitable Trusts.

The lenders are blocking bills restricting the industry in other states, including Ohio, where borrowers typically pay an annual rate of 591 percent — the highest payday loan costs in the United States.

Read the full editorial.

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