MI Groups Want Regulators to Rein In Payday Lending
Friday, January 29, 2016
LANSING, Mich. - Consumer groups in Michigan want payday-lending regulations to have more bite, and are asking federal regulators to rein in the damage done by the industry.
The Consumer Financial Protection Bureau is writing new rules to prevent consumers from falling into a so-called "debt trap." Debbi Adams of Detroit, a payday-lending reform advocate for the Michigan United coalition, said new regulations should require lenders to ensure that customers are able to repay a loan, instead of the lender simply focusing on their own ability to collect.
"They lure them in with 'OK, you can get this, pay it back, no problem.' But they take so much of their money that when they try to pay it back they'll have nothing to live on 'til the next payday unless they take out another loan," she said. "That's how they get caught into this cycle of debt."
According to the CFPB, four out of five payday loans are renewed within two weeks. The bureau is proposing rules to prevent borrowers from taking out more than one loan at a time and that cap payday-lending interest rates. Some in the industry argue the new regulations will be expensive, with additional costs being passed on to borrowers or putting some lenders out of business.
The average annual percentage rate for a payday loan is nearly 400 percent in Michigan. Adams said Americans are losing nearly $9 billion each year in interest from payday loans.
"They target primarily low-income and community of color and students," she said. "The people who can least afford it are the hardest hit by this industry."
Adams argued that the industry's claims that payday loans are a popular and necessary service are not completely accurate.
"They have a low default percentage, and that's because they go immediately into people's accounts and take the money so they get paid," she said, "but they don't tell about the devastation that they leave."
The rules are expected to be announced by the end of March, and then a 90-day comment period begins. Adams said that is a crucial time for Michiganders to share their stories so regulators can see the harm that is caused by payday lending. The rules likely will not be finalized until 2017.
More information is online at familiescantwait.org.
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