Friday, March 27, 2015
Associated Press
WASHINGTON
Each month, more than 200,000 needy U.S. households take out what’s advertised as a brief loan.
Many have run out of money between paychecks. So they obtain a “payday” loan to tide them over. Problem is, such loans often can bury them in fees and debts. Their bank accounts can be closed and their cars repossessed.
The Consumer Financial Protection Bureau proposed rules Thursday to protect Americans from stumbling into what it calls a “debt trap.” At the heart of the plan is a requirement that payday lenders verify borrowers’ incomes before approving a loan.
The government is seeking to set standards for a multibillion-dollar industry that historically has been regulated only at the state level.
“The idea is pretty common-sense: If you lend out money, you should first make sure that the borrower can afford to pay it back,” President Barack Obama said in remarks prepared for a speech in Birmingham, Ala. “But if you’re making that profit by trapping hard-working Americans in a vicious cycle of debt, then you need to find a new way of doing business.”
The payday industry warns that if the rules are enacted, many impoverished Americans would lose access to any credit. The industry says the CFPB should further study the needs of borrowers before setting additional rules.
Roughly 2.5 million households received a payday loan in 2013, according to an analysis of Census data by the Urban Institute, a Washington-based think tank. The number of households with such loans has surged 19 percent since 2011, even as the U.S. economy has healed from the Great Recession and hiring has steadily improved.