Complaints net payday loan rules
WASHINGTON — Troubled by consumer complaints and provisions in state laws, federal regulators are putting together the first rules on payday loans aimed at helping cash-strapped borrowers avoid falling into a cycle of high-rate debt.
The Consumer Financial Protection Bureau says state laws governing the $46 billion payday lending industry often fall short, and that fuller disclosures of the interest and fees may be needed.
Full details of the proposed rules, expected early this year, would mark the first time the agency has used the authority it was given under the 2010 DoddFrank law to regulate payday loans. In recent months, it has tried to step up enforcement, including a $10 million settlement with ACE Cash Express after accusing the payday lender of harassing borrowers to collect debts and take out multiple loans.
A payday loan, or a cash advance, is generally $500 or less. Borrowers provide a personal check dated on their next payday for the full balance or give the lender permission to debit their bank accounts. The total includes charges often ranging from $15 to $30 per $100 borrowed.
Legislators in Ohio, Louisiana and South Dakota unsuccessfully tried to broadly restrict the high-cost loans in recent months. According to the Consumer Federation of America, 32 states now permit payday loans at triple-digit interest rates, or with no rate cap at all.
The consumer bureau isn’t allowed under the law to cap interest rates, but it can deem industry practices unfair, deceptive or abusive to consumers.
“We offer a service that, if managed correctly, can be very helpful to a diminished middle class,” said Dennis Shaul, chief executive of the Community Financial Services Association of America, which represents payday lenders.
Maranda Brooks, 40, a records coordinator at a Cleveland college, says she took out a $500 loan through her bank to help pay an electricity bill. With “no threat of loan sharks coming to my house, breaking kneecaps,” she joked, Brooks agreed to the $50 fee.
Two weeks later, Brooks says she was surprised to see the full $550 deducted from her usual $800 paycheck. To cover expenses for herself and four children, she took out another loan, in a debt cycle that lasted nearly a year.
Last June, the Ohio Supreme Court upheld a legal maneuver used by payday lenders to skirt a 2008 law that capped the payday loan interest rate at 28 percent annually.