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Money Are payday loans abusive Should they be more intensely regulated

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The industry should be regulated at the federal, and not the state, level as too many manhandles have slipped past overworked and periodically corrupted state level officials.

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Eventually fresh Payday Loan regulations are on the way and should be unveiled today. No more 391% annual interest. Loans will need to be more reasonable—there should be an capability to pay and less rolling over. Lender should not be profiting form loans that can never be repaid and only create a perverse cycle of ever enhancing debt. The number of loan will shrink under the regulations, and the industry will very likely need to consolidate, but hopefully this will reduce the worst predatory cases. However some including the NY Times editorial board believe the measures does not go far enough, the measure should in include the 5% of income limit, and further similarly to the military ban on predatory lending the effective annual rate should be limited to 36% (much less than the current 391% rate).

The payday loan industry… could soon be gutted by a set of rules that federal regulators plan to unveil on Thursday.

People who borrow money against their paychecks are generally supposed to pay it back within two weeks, with substantial fees piled on: A customer who borrows $500 would typically owe around $575, at an annual percentage rate of 391 percent. But most borrowers routinely roll the loan over into a fresh one, becoming less likely to ever emerge from the debt.

…lenders will be required in many cases to verify their customers’ income and to confirm that they can afford to repay the money they borrow. The number of times that people could roll over their loans into newer and pricier ones would be curtailed.

…“The very economics of the payday lending business model depend on a substantial percentage of borrowers being incapable to repay the loan and borrowing again and again at high interest rates,” said Richard Cordray, the consumer agency’s director.

…According to the group’s website , “More than Nineteen million American households count a payday loan among their choice of short-term credit products.”

The Consumer Financial Protection Bureau said the median fee on a storefront payday loan was $15 for every $100 borrowed.

Both sides agree that the proposed rules would radically reshape the market. Loan volume could fall at least 55 percent, according to the consumer agency’s estimates, and the $7 billion a year that lenders collect in fees would drop significantly.

…Senator Bernie Sanders has called for a 15 percent rate cap on all consumer loans.

…Hillary Clinton praised the payday lending proposals that the consumer agency released last year and urged her fellow Democrats to fight Republican efforts to “defang and defund” the agency.

Consumer advocates are glutton for fresh payday lending rules, but some say the bureau’s rules do not go far enough.

…Mr. Bourke said he was frustrated that the agency had dropped a proposal to require that longer-term loan payments consume no more than Five percent of a borrower’s monthly income. The draft rules instead simply require that lenders make sure that customers can afford to repay the loans and still cover their basic living expenses and other debts.

…said George Goehl. “For decades, predatory payday lenders have gotten away with taking money from people who didn’t have much to begin with.”

…Candice Byrd, 29, is a former payday borrower who welcomes more limitations on an industry she views as rapacious and disruptive.

…[Her] loan had a six-week duration, but halfway through the period, the lender suggested that she roll it over into a fresh loan. “She was like, ‘You’re a good customer. This would be helpful for you,’” Ms. Byrd recalled. “It was the worst idea ever.”

…set off a worsening cycle… Incapable to pay her bills, she said, she lost her car and her apartment.

…“These places want you to keep borrowing,” she said. “They don’t want you to climb out of the slot.”

The Consumer Financial Protection Bureau has been promising for more than a year to rein in the payday lending industry, whose business model relies on luring Americans into ruinously priced loans that can carry interest rates exceeding 400 percent. The proposal that the agency unveiled Thursday represents a down payment on that promise. But the final rule — expected next year — will need stronger, more explicit consumer protections for the fresh regulatory system to be effective.

The industry says it provides a convenient option for consumers, who can get a quick loan and repay it on their next payday, typically in two weeks. The bureau discredited that claim two years ago in a striking explore of more than 12 million loans issued in more than two dozen states. Only 15 percent of the borrowers could raise the money necessary to repay the entire debt within 14 days without borrowing again. One in five of these borrowers defaulted at some point, which meant bruised credit and more fees. And almost two-thirds of them renewed a loan — some more than Ten times — putting them on a path toward ruinous debt.

Most people ended up paying more in fees than the amount they borrowed. In other words, the system is expressly designed to bleed borrowers, who are typically fighting workers or people on immovable incomes who are just getting by.

…the most significant of which would limit monthly payments to no more than Five percent of the borrower’s expected gross income for the same period. This would have the effect of spreading the costs and fees over the life of the loan, instead of having them come due all at once.

The bureau dropped the Five percent measure from its current proposal — after protests by lenders and others — but should resurrect it in the final version…

…The best solution would be for Congress to give the public the same protection from predatory lending that members of the military received under the Military Lending Act of 2007. The rules created under that law made it illegal for lenders to charge more than 36 percent for payday loans, vehicle title loans, installment loans and other forms of credit. (That rate is still fairly high.)

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