Many low-income families rely on payday loans to stretch their money from paycheck to paycheck. But these short-term loans often take advantage of consumers. That’s why President Obama and the Consumer Financial Protection Bureau are calling for regulations that balance credit availability and predatory lending protections.

Recently, President Obama spoke at Lawson State Community College. He supported a new Consumer Financial Protection Bureau (CFPB) proposal to regulate short-term payday loans and predatory lending practices.
Payday loans, check loans, and cash advances are short-term loans, usually $500 or less, due on a borrower’s next payday. They can have interest rates over 400 percent. They are often issued regardless of whether consumers can actually pay them back. Instead, the loans are rolled over and accrue even more high interest and fees. Then the collections agencies threaten lawsuits and criminal charges to get consumers to pay, tactics that are illegal under state and federal law.
According to CFPB, borrowers took an average of 10 payday loans over a 12 month period. Over 80 percent of these loans were rolled over or renewed within two weeks of being issued.
The payday loan industry has dodged state consumer protection laws by shifting its terms and products. That’s why CFPB and President Obama feel that federal regulation is necessary. In his speech, the President said,

“We don’t mind seeing folks make a profit. But if you’re making that profit by trapping hard-working Americans into a vicious cycle of debt, then you got to find a new business model, you need to find a new way of doing business.”

That is why the CFPB has laid out options for how payday lenders would be allowed to operate. Under one option, the lenders would have to determine whether borrowers have the financial means to pay the loan on time. Other models place limits on how many times a loan can be rolled over or subsequent loans can be made. For loans longer than 45 days, interest rates would be capped at 28 percent and monthly payments will be limited to 5 percent of the borrower’s gross income.
The CFPB restrictions have met with resistance from the payday lending industry and from pro-consumer legislators like Senator Jeff Merkley of Oregon, who feels the proposal leaves too many openings.

“They should instead strengthen this proposal by absolutely ensuring it is free of loopholes that would allow these predatory loans to keep trapping American families in a vortex of debt.”

President Obama says this is a way to make sure more of consumers’ paychecks stay in their pockets. It will be a key first step to limiting predatory lending practices of payday lenders and protecting consumers from unreasonable interest and fees.


Dani Liblang is a consumer protection lawyer with The Liblang Law Firm, P.C., in Birmingham, Michigan. She protects consumers from predatory collections actions and helps them get out from under oppressive debt. If you have been harassed by creditors, contact The Liblang Law Firm today.
Dani Liblang

Author Dani Liblang

Dani K. Liblang is a collections harassment defense attorney at The Liblang Law Firm, PC, in Birmingham, Michigan. If you are being harassed by debt collectors, contact The Liblang Law Firm today for a free consultation.

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