Payday Lenders Claim CFPB Forces Borrowers into Riskier Loans
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UPDATED: Jan 19, 2012
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Storefront payday loan lenders are banding together in light of the Consumer Financial Protection Bureau’s (CFPB’s) recent announcement of forcing payday lenders to adhere to certain financial laws.
Earlier this month, the CFPB declared all non-bank entities—which include payday loan lenders—are to abide by the Truth in Lending Act and Equal Opportunity Act. But the cash advance lenders claim that such a decree will force their customers to pursue even more dangerous and volatile loans from lenders online.
“Regulators sometimes with good intentions don’t take into account that there are true issues that come up in peoples’ lives where they need access to short-term cash,” said Tony Scales, founder of Express Check Advance, according to Reuters. “If mandated regulation makes it where it is not profitable, it will drive customers to higher-cost products.”
Jamie Fulmer, a spokesman for Advance America, the nation’s largest payday loan lender, said that such regulation will force borrowers to turn to illegal lenders online. “Consumers end up paying more, being more susceptible to being taken advantage of and don’t have anybody to turn to,” he told Reuters.
While payday lenders are certainly looking out for their best interests, their argument does have evidence to support it.
Debt Consolidation Care, a community providing advice to those in debt traps, has members who investigate online payday loan lenders for those struggling under the weight of their monthly bills. A surprising amount of online cash advance providers are found to be illegal or operating illegally in certain states. They skirt state-mandated law, and often leech money from payday clients until they’re called out on their actions. Then they still can request payment of the principal less any interest from borrowers, but rarely undergo any legal repercussion.
But Richard Cordray, the CFPBs newly appointed director, believes the CFPB will be able to regulate any illegal practice.
“We will begin dealing face-to-face with payday lenders… and other firms that often compete with banks but have largely escaped any meaningful federal oversight,” he said earlier this month after President Obama appointed him to his position.
Storefront payday lenders will have the opportunity to pitch their case to the CFPB as a field hearing about the industry of cash advance loans is being held in Birmingham, Alabama on Thursday.