New York Times: Reining in Payday Lenders
At some point — soon, we hope — the Federal Consumer Financial Protection Bureau will issue regulations for the payday lending industry.
But only about 14 percent of the borrowers can afford to repay the loan in full, according to a new study by The Pew Charitable Trusts. The rest can only afford to repay part of the loan, which forces them to renew the loan again and again, at a cost of about $50 a pop. In the meantime, lenders often trigger overdraft fees by trying to withdraw money from the accounts of borrowers who have too little on hand to meet the obligation. In the end, the hapless borrower can pay as much as 400 percent in interest.
Fifteen states have outlawed such exploitive lending. But the remaining 35 still allow payday lending that requires the full amount to be paid at once. After analyzing data from all over the country, Pew sensibly recommends that state and federal regulators forbid lump-sum repayment requirements, ensure that lenders clearly disclosure terms and require lenders to spread out payments over months rather than weeks.
Read the full article at nytimes.com.
- Safe Small-Dollar Loans Research Project