Payday Advance Loan Providers May Soon Have Friends in Washington
In recent years, payday advance loan providers have been up in arms with the federal banking regulators trying to put restrictions to the industry.
Under the Republican-controlled White House and Congress, non-bank lenders might be facing more regulatory limitations that could turn all the efforts of cracking down on low-income Americans upside-down.
At present, payday lenders are standing against the banking regulators because they believe that they are organizing a back-room campaign to force banks into breaking all business ties with them.
The Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corporation are 3 of the leading federal banking regulators that the motion is seeking to block from continuing their 3-year campaign to drive high-interest, short-term lenders out of business.
Advance America, one of the largest payday lenders, states that it has lost partnerships with 5 banks in the recent weeks including BBVA Compass and US Bancorp.
The non-bank lenders are heavily reliant on their ties with powerful national banks to make sure that they are able to withdraw payments from the accounts of their borrowers, according to Valenti.
For years, payday loans have been a topic of interest. The loans are generally provided in values of $500 or less and directed towards the low-income borrowers. Since their credit scores are low, payday lenders are their only solution. Poor Americans use the loan money to take care of short-term needs, such as paying bills.
Irrespective of the case, the volume of these loans has been on the decline over the recent years. Just last year, payday lenders gave approximately $40 billion in loans and experienced a 14% drop from 2013. According to CFPB, borrowers bounce from paycheck to paycheck for a minimum of 5 months when they take a loan for payday lenders. Due to high rate of interest, they also end up repaying a lot.
The November 8 elections proved to be a sweeping victory for Republicans and attempts have been made to reel in the predatory lending practices. In 2011, the CFPB was incepted as a part of Consumer Protection Act and Dodd-Frank Wall Street Reform. It has been the target of a lot of scorn by Republican allies and lenders. The efforts are at risk now.
For instance, the CFPB declared a proposed rule in June to attempt to remove predatory debt traps from payday loans. The proposal will need lenders to carry out a full payment test to make sure that borrowers are able to handle loan terms while continuing to cover their basic expenses. This measure is directed towards decreasing the propensity of these borrowers of taking out more than one loan over a period of time.
However, the proposal is still being reviewed by CFPB. Since it is unlikely that the rule will be in effect, the Republicans are going to have a lot of time to dismantle the organization’s efforts.
After taking office in January, President-elect Donald Trump might try to replace, Richard Cordray, CFPB’s head, with a director who is industry-friendly. Trump administration may also replace a single director on a commission where the representatives of the industry might win seats.
It is more likely that the Republicans are going to simply implement riders in appropriation bills in the future to defund certain activities of the CFPB or even exempt the payday lenders from CFPB’s oversight. In the past, the house Republicans has tried the same thing, but the riders had to be removed due to the threat of veto by Barack Obama, the President.
Valenti said that thee numerous ways by which the CFPB can be tripped up by the next administration.
Now that efforts are there to regulate oversight for payday advance loan providers, it should get a whole lot easier for poor Americans to secure a loan.