The CFPB is shutting down a lot of payday loans -- where will consumers go next?
By Maria LaMagna
The Bureau is cracking down on 'payday debt traps'
Is this the beginning of the end for payday loans?
The Consumer Financial Protection Bureau issued a final version of its rules for payday lending on Thursday. "The CFPB's new rule puts a stop to the payday debt traps that have plagued communities across the country," said CFPB Director Richard Cordray. "Too often, borrowers who need quick cash end up trapped in loans they can't afford."
The CFPB issued the rule after researching payday lending practices for five years; it published a proposed rule in June 2016 (https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-proposes-rule-end-payday-debt-traps/), which received more than one million comments online and was revised to its current format.
The goal: To break a "cycle of taking on new debt to pay back old debt," the CFPB wrote.
It will regulate loans that require consumers to repay all or most of their debt at once, including payday loans, auto-title loans and "deposit advance" products (http://files.consumerfinance.gov/f/201304_cfpb_payday-dap-whitepaper.pdf), which typically work by taking the repayment amount out of the borrower's next direct electronic deposit.
Some 12 million Americans take out payday loans each year (http://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2016/01/payday-loan-facts-and-the-cfpbs-impact), according to the nonprofit Pew Charitable Trusts, a nonprofit based in Philadelphia. But those consumers also spend $9 billion on loan fees, according to Pew: The average payday loan borrower is in debt for five months of the year and spends an average of $520 in fees to repeatedly borrow $375. (And they don't help borrowers build credit, unlike some other options.)