It is still a little while in the future before new, tougher restrictions are to be proposed on the payday lending industry. But that is not stopping critics of the new laws – many of them Congress members – from scrutinizing and criticizing the new rules. The regulations have even caused a massive schism among Democrat leaders. The chair of the Democratic National Committee Debbie Wasserman Shultz and Senator Elizabeth Warren are at odds over this very topic. Wasserman Shultz is in favor of delaying new rules, but Warren (as she is wont to do) is urging the powers that be to move forward with plans to implement the new regulations.
Warren and those who support her on this issue believe that consumers wind up in traps of debt when they take out repeat payday loans in order to pay for previous loans. Consumer advocates say that this kicks off a cycle where consumers have to pay more fees, more interest and more money than the original loan that they took out. In the most extreme cases, these advocates say that consumers could even wind up going bankrupt.
Payday lenders and their supporters, however, say that their industry is one of only a handful that provides a way for many Americans to get money when they are in a financial pinch. This is because many people who take out payday loans are lower-income and/or underserved by the traditional banking industry in this country.
The Origins of the Consumer Financial Protection Bureau – CFPB
The Consumer Financial Protection Bureau was created solely because of the Dodd-Frank law that was implemented after the 2008 financial crisis. It has outlined new rules that it is proposing for short term lending companies. The outline of new rules was presented last year, and it is expected that the regulations will force lenders to do screenings on their customers to makes sure that these borrowers are well able to repay their loans. The regulations may lead to putting a stop to lenders making new loans for at least 60 days after a loan gets repaid, unless the lender can provide documentation about the financial status of the borrower, and the proof that the potential borrower has the financial status to afford the new loan.
The CFPB plans on proposing these rules before spring comes to an end and then on taking comments from the public about the regulations before final decisions are made. Critics of the bureau are saying that the new regulations are just another example of an agency that is out of control. Dennis Shaul, the CEO of Community Financial Services said, “They have gone way further than they need to, to cure what we all agree is a problem — that people can stay (on a cycle of debt) too long and it could become injurious to them.” He said that the regulators should concentrate their efforts on companies in this industry that don’t play by the rules and that action should be taken against the lending companies that have excessive volume of borrowers who default on their loans.
The Battle between Democrat Leaders Starts to Heat Up
Wasserman Shultz has thrown her support behind a Republican sponsored bill that would delay the regulations for a few years. Warren, who has long been associated with financial issues in this country believes that the bill Wasserman Shultz is supporting is an outright attack on the CFPB. Warren recently defended the CFPB via tweets and believes that any bipartisan action to prevent the new regulations would effectively “sabotage” the bureau.