Trust payday loan borrowers to make decisions for themselves
Consumer Financial Protection Bureau’s rules effectively would ban payday loans. What motivated the CFPB to remove payday loans from an industry that offers a wide array of financial products and eliminate this industry? The Bureau found that payday loan borrowers are at high risk of being forced by the government to borrow again.
Repay loans using borrowed money
It’s bizarre to claim that companies “impose” products on customers. The Bureau’s approach was inspired by Senator Elizabeth Warren’s 2008 article “Making Credit more secure”. Warren and Bar Gill claim that payday loan borrowers are more likely to get into debt if they have high cash flow expectations, but run out unexpectedly of funds before they can get the next one. Check. They then are “forced”, again, to borrow money in order to repay their loans as payday now reports.
The Bureau should adopt this payday loan narrative, as Congress has not given it the power limit interest rates. The “optimism,” scenario supports regulation that does NOT directly target interest.
Although it is a clever idea, payday loan repayment cannot be forced. Surprisingly there is no evidence to suggest that lenders “force” clients not to borrow again. The empirical evidence supports the Bureau’s paternalistic approach to borrowers. Borrowers are much more aware of the consequences.
Payday loans are available to you to repay your unsecured debt.
Recently published article by mine. It describes a 2012 survey of 1,374 payday lender customers. Survey respondents were asked when their payday loans would be paid off.
Borrowers were realistic when they set their expectations. 60% of borrowers correctly anticipated the amount of time it would take for them to pay off their debts within one payment period. The Bureau’s alleged “optimism bias” (which was blamed on borrowers) did not exist. Many borrowers were capable of getting out of debt much earlier than anticipated.
These results were based on a 2012 Center for Financial Services Innovation research that found 68% had paid their payday loan by the due date. Harris Interactive, a trade association in the industry that was funded by The Community Financial Services Association of America (2013), found that 94% of borrowers knew how long it would take for them to repay their loan.
This assessment is not universally acceptable by all parties. PaydayNow Charitable Trusts for example surveyed 703 borrowers that had taken out payday loans in the past five year. Only 42% reported that they could pay more $ 100 per monthly or $ 50 per week. According to the 2011 data survey the average borrower will take a $375 loan, and then owe $55 more. In two weeks, this means they will owe $433. Advance America
Payday loans can be deceptive
PaydayNow draws these conclusions to prove payday loans are deceptive. According to the group, payday loan borrowers should never be expected pay more than a few hundreds dollars. PaydayNow’s research is in line with my own. Borrowers already know that they will need loans for a longer period of time before borrowing.
Long-term debt does not mislead borrowers who have their repayments in place before they take out loans. The Bureau is moving towards eliminating payday loans. This will cause major problems for most borrowers who use these types of credit.
People face many choices every day. They have to assess the options available for them, including job opportunities, health plans, cell phones contracts, college admissions, and other options. It is difficult to compare multiple factors. It is obvious that sometimes decisions are not in our best interests. Even if we make errors sometimes, there are still options.
The Bureau announced that it had shut down short-term lenders in some communities. This will please some borrowers. However, thousands will feel frustrated when they realize they can’t access the funds needed to repair their cars, pay medical bills, or pay utility bills. Because the Office has the responsibility to prevent fraud and abuse, it is hard to deny people trying to recover after the Great Recession tools that can help them with daily life.