Officials with the Consumer Financial Protection Bureau (CFPB) have proposed new rules for the short-term credit industry, which will effectively eliminate the option to secure highly accessible, short-term credit for those who need it most.
CFPB officials acknowledged the fact that their new rules would reduce the number of lenders who can offer short-term credit to the public, as well as, the number of people who will qualify for access to payday loans. In their proposal, officials stated that around 60 to 80 percent of consumers who use these loans will no longer have the option. Opponents argue that rather than help these people avoid deep financial difficulties, this proposal could create them.
Who Uses Short-Term Loans?
A wide range of consumers take advantage of short-term credit, including single people, couples and families. They are Americans who are living from paycheck to paycheck who would find themselves in a financial hole very quickly if they did not have the short-term credit option. That’s because these consumers cannot qualify for a conventional loan at a traditional bank. If the CFPB’s rules go into effect, these consumers would have no choice but to consider desperate measures, such as applying for exorbitantly expensive loans from unlicensed off-shore lenders who cannot be regulated.
Crucial Information that Is Being Overlooked
Critics of the CFPB’s proposal state that the agency’s officials are overlooking crucial information. CFPB administrators saw the need to write stronger rules for the short-term credit industry because of the many complaints the agency received from consumers. However, officials acknowledged the fact that only one percent of the complaints the agency received came from consumers of payday loans. Most of the complaints are related to credit cards, debt collections practices and mortgages.
The Federal Trade Commission or FTC obtained similar numbers when its officials analyzed the complaints this agency received. The FTC heard 2.5 million grievances last year, and less than one percent were related to payday loans. Furthermore, researchers from Kennesaw State University and Columbia University learned from their studies that payday loans do not adversely affect a consumer’s finances.
The Answer to the Short-Term Credit Problem
Those who oppose the CFPB’s proposal are calling for a balanced approach that acknowledges the need to protect consumers from predatory lenders but does not cause the entire short-term credit industry to shut down. A bipartisan congressional delegation from Florida has called on the head of the CFPB to take into account the already well-established regulatory framework that exists at the state level, and to refrain from making hasty policy decisions that aren’t firmly rooted in fact.
The above-mentioned members of Congress expressed their support for regulation of the short-term credit industry in a letter to the director of the CFPB, but they also expressed the need to ensure that American consumers continue to have as many lending options as possible. In addition, they would like any action that the agency’s officials take to be based on research like that which was obtained from the two universities mentioned above. The Florida representatives offered their state as an example of how the short-term credit industry can be reformed without forcing it out of business, and it is a model that has had great success.