The so-called “payday loan” industry operative across the United States is reportedly a behemoth of outlandish size, bringing in approximately $46 billion annually for its lenders scattered across the various states.
It’s time to rein it in, notes the national Consumer Financial Protection Bureau, which recently announced plans to more closely regulate the industry in Florida and nationally. Payday loan-related laws and regulations have long been the special province of state authorities.
The fundamental reasons why payday loans are deemed troublesome are both obvious and several.
The core concern rests with the escalating spiral of debt that a consumer contracting for such a loan can get embroiled in. As described in an online primer on payday loans, a high percentage of borrowers mistakenly assume that their repayment duties will be short-lived and manageable.
Sadly, that assumption is too often far off the mark. Although most such loans are only for a few hundred dollars, they can’t be paid back promptly, which necessitates a second loan for many borrowers. That loan brings, of course, additional fees and interest exactions that are tacked on to the amount originally owed.
For many borrowers, the second loan is understandably more difficult to pay back, which necessitates yet a third loan, and so on.
In time, a borrower who originally signed on for seemingly manageable debt-repayment terms can be facing astronomical and steadily growing payment exactions.
The CFPB is notably concerned with that oft-resulting scenario and wants to craft some new rules for the industry. Although the bureau lacks authority over interest rate ceilings, it can take a number of other actions to spotlight deception and to educate consumers.
Its stated intent to do so is certainly laudatory. Loans with onerous repayment terms are central catalysts driving many consumers to financial ruin. Any actions that focus on debt reform and meaningful debt relief are worthy of close study and careful implementation.