Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jan 25, 2012

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Last week the director of the Consumer Financial Protection Bureau (CFPB), Richard Cordray, made a public statement in Birmingham, Alabama, in which he introduced the industry of payday lending to his audience and informed them his bureau is seeking to remedy the flaws within that industry. Immediately, payday loan supporters and industry-insiders leapt at the director’s remarks in a defensive maneuver to thwart any sort of regulation that may come out of this bureau.

However, despite the recent negative reception the newly appointed director has received, his public announcement proved to be a refreshing, and admittedly unexpected, stance.

‘Make Informed Financial Decisions’

In one of his first major announcements as director, Cordray successfully brought the two parties his bureau is in charge of monitoring together: borrowers and lenders.

“We deeply believe in empowering people so they can make informed financial decisions and take responsibility for those decisions,” said Cordray in his public statement about payday loans.

Borrowers want to be educated about loans and the lending industry since, try as they might to avoid them, most will use loans to finance something in the future. Whether it is for a home, an automobile, their education, or an emergency situation requiring a cash advance, borrowers interact with lenders, and, as the CFPB stated, ought to be “empowered to make informed financial decisions.”

On the other side of the coin, the CFPB let those who issue payday loans know they will not be ignored or treated unfairly by letting them there is a line drawn in the sand measuring just how far a lender must go to protect those seeking their services. Cordray let lenders know that borrowers have the duty to take responsibility for their own decisions.

This impartial approach is the exact sort of attitude the CFPB needed to take when it comes to regulating payday loan industry. In a capitalistic society, both producer and user needs to be acknowledged and protected—and so far, the CFPB seems to be interested in doing exactly that.

Pre-Emptive Scouting

The meeting that took place in Alabama wasn’t meant to push policy, but instead to gather intelligence.

“We came here to listen, to learn, and gather information on the ground that will help inform our approach on these issues,” explained the director.

With over 19 million people taking out payday loans each year, Cordray felt it necessary to very carefully consider the experiences of both lender and borrower before making any industry-changing moves.

On the CFPB’s website, they asked readers to share their payday loan experiences on the comment board so the CFPB could get a better feeling and sampling for how this short-term financing has helped or hurt the borrowing community. But despite their intel-gathering, Cordray wanted to make it apparent that he wasn’t immediately condemning payday lenders.

“I want to be clear about one thing,” he said. “We recognize that there is a need and a demand in this country for emergency credit. At the same time, it is important that these products actually help consumers, and not harm them.”


Controversy Surrounding the Director

Such remarks couldn’t come at a more crucial time either.

There has been much controversy floating around Richard Cordray and his position as director of the CFPB. Fortunately, the controversy hasn’t been directed at him, but rather at President Obama, as the president allowed Cordray to assume position as director by recess appointing him.

Recess appointing is the act of appointing somebody to a position of power when the Senate is on recess, and thus unable to vote on an appointing.

However, this power was enacted after the Senate struck down the nomination on several occasions, and the recess appointment occurred after but a single day of the Senate not meeting together.

As a result, the president’s action evoked the ire of many Republicans, and caused some to accuse the country’s head of abusing power.

Regardless of what happened in the recent past, though, the fact remains that the country’s lending services are now being monitored by a government agency. So long as that agency continues with its impartial and unbiased approach, few should have a problem with their practice. And maybe, just maybe, we will see some forward movement that helps the payday loan industry as a whole—offering new protections to both borrowers and lenders.