The Obama administration put into place rules and regulations that were meant to protect families from predatory payday lenders. Now, with the increased focus of cutting back on government regulations, the Trump administration may seek to overturn those rules on high priced loans.
Using the power of the Consumer Financial Protection Bureau, or CFPB, the Republican led administration will be taking at close look at the industry during the course of 2018. Note that while the federal government can in fact make some changes that could impact the industry, there are also a number of state specific regulations around payday lending as well as other high priced, predatory type loans including car title, pawn shop, salary advance and others.
Obama era regulations
Starting in 2012, the Democrats started to take a close look at the payday loan as well as cash advance industry. They determined that too many low income, hard working families were falling into debt. Some of the lenders were also targeting vulnerable or so called desperate people, such as those with a medical emergency, military families who were deployed overseas, single parents, and others.
Based on the results of that multi-year review, and after receiving comments from the public as well as lending industry, the Consumer Financial Protection Bureau put rules into place to protect borrowers. They said the following.
The CFPB regulation said any company or person issuing a salary advance, title, or pawn shop loan had to ensure the borrower could pay it off within 30 days, with interest. In other words, the borrower’s income needed to be able to support the interest as well as principal payments. If the household’s income could not pay off the loan, then it was illegal for the lender to give them the money.
The CPFB in 2017 and 2018
President Trump and the Republican party took control of all 3 branches of the government in January 2017. One of their primary goals is to cut back on the number of rules and regulations that businesses need to deal with. That impacts every company ranging from title loan as well as payday lenders to car manufacturers, banks, technology companies, supermarkets, and others. Caught up in this wave is the payday as well as emergency cash loan industry
Consumer protections are the reason that the CPFB was created after the 2008 financial crisis. The goal of the federal government agency was to ensure that banks, lenders, financial advisers, and others could not take advantage of borrowers. Whether it was issued a high priced, complicated mortgage or a payday loan, the Consumer Financial Protection Bureau was created to ensure borrowers were treated fairly.
With the payday and high-priced lending industry being major Republican party donors, now the federal government may roll back some of those regulations that were placed on predatory lending. Fewer rules may make emergency cash more accessible to those in need, of course the downside is the cost of using these lenders.
Payday loans are regulated by states
While the federal government may change some of their rules in 2018 and future years, states still have the ability to regulate payday lenders. In fact, there are currently 12 states that ban payday companies, including some of the largest such as New York, Pennsylvania, and New Jersey.
This means that the CFPB can only do so much “damage” to borrowers. While they may cancel some of the Obama era regulations, states do not need to abide by anything the federal government does. They may place their own caps on interest rates, fees, payment practices, and other terms and conditions. Or they may outright ban the lenders.
In general, we always recommend that anyone in need do everything possible before turning to one of these lenders, whether it is a car title or payday company. Seek help from charities first, ask friends or families for support, and do everything possible to avoid using a high-priced lender.