Payday Loans: Protection & Prevention

An OppLoans eBook

Payday Loans: Protection & Prevention

To help monitor payday loans and the payday loan industry, the Consumer Financial Protection Bureau (CFPB) was established in 2011 under President Barack Obama’s administration. An agency of the United States government, the CFPB exists to provide consumers with financial education to make prudent fiscal decisions. The CFPB also takes action against lending companies that engage in predatory practices. Included in its list of duties is monitoring financial markets for new financial risks to consumers, managing complaints against lenders and recommending regulations. [19]

The Consumer Finance Protection Bureau reported in 2013 that over half of deposit advance participants, using FDIC insured bank programs as well as payday loan options, generally took out advances totaling over $3,000 and they tended to be indebted for over 40% of the year. The data clearly illustrated that many consumers were unable to repay their loan in full and still meet their other expenses, the CFPB reported in its White Paper of Initial Data Findings. [20]

To combat the payday debt traps, the CFPB passed various consumer protection regulations in the “Rule On Payday Loans,” which was finalized under Obama’s administration on October 17, 2017. The regulation affects payday loans, auto title loans, deposit advance products and longer-term loans with balloon payments, meanwhile limiting the number of these loans that can be made to a single borrower. This rule also curtails lenders’ repeated attempts to debit payments from a borrower’s bank account, a practice that racks up fees and can lead to account closure. [21]

Another tenet of the final rule, 12 CFR 1041, which addresses Payday, Vehicle Title and Certain High-Cost Installment Loans, bans the ability of a payday lender to repossess a vehicle that was previously used as collateral. The CFPB found that repossession of a vehicle inhibits a borrower’s ability to use that transportation to drive to work in attempts to earn income to buy their way out of the debt cycle. [22]

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