It has been a tough month for Payday loan providers.
After Google decided to ban online ads for Payday lenders, comes news that today the US government is looking to unveil new rules to regulate the industry. Some industry observers believe that the ‘new rules’, if implemented, could drive the lenders out of business entirely, or at best curtail the practice in a big way.
Payday loans are small, high-interest loans used most often by low-income workers to help cover monthly expenses between paychecks.
The new ‘Payday Rule’, proposed by the U.S. Consumer Financial Protection Bureau (CFPB), imposes a complex set of requirements on payday industry participants. The major changes involve a lender’s requirement to better assess a borrower’s ability to repay, and rules making it harder for lenders to roll over loans – a common industry practice which often leads to escalating borrowing fees. It will also be harder for the lenders to take fees out of a borrower’s bank account.
The CFPB is a federal regulatory agency which was established in response to the 2008 Wall Street meltdown specifically to police banks and other financial institutions and protect consumers’ interests. From recent activity, it looks like the Obama administration is using it in its last year in office to alter the balance of power between consumers and financial institutions overall. The CFPB apparently plans to roll out in the coming months other new rules governing prepaid bank cards, bank overdraft fees and consumer debt collection.
In the US alone. the Payday Loan industry is a $40 billion annual business.
Some industry observers believe that the current proposed rules are a first step for a government ‘takeover’ of the industry, with Obamaloans looking to join Obamacare as a solution for low income workers.
More on both sides of the story can be seen at the Wall Street Journal.