Payday Loans Draw Further Ire from the Consumer Financial Protection Bureau
A new study released by the Consumer Financial Protection Bureau, or CFPB, targets the beleaguered payday lending industry with yet another charge of malfeasance. Apparently, these lenders are trying too hard to collect their legal debts from borrowers. JDSupra.com1 reveals that the report, which was published before the CFPB released its long-awaited guidelines on June 2, 2016, found that half of online payday loan borrowers were charged an average of $185 in bank-related penalties when multiple check presentations were made for payment after the first check deposit bounced.
The study went on to rail against the practice of presenting electronic requests for funds multiple times in one day. However, since most of these small dollar loans were payday loans, it makes perfect sense to try to get the money on payday. The June 2nd CFPB guidelines already proposed a rule to ensure that borrowers could afford to repay their payday loans, so there’s little reason to further complicate the industry’s legal prerogative to cash repayment checks or pursue payment with aggressive but legal collection practices.
There’s no guarantee that people will repay their loans and nothing to prevent borrowers from withdrawing their funds before any electronic checks can be presented for payment. It’s common practice for all kinds of creditors to present bounced checks multiple times for payment, which causes thoughtful people to wonder where are the studies that analyze landlords, restaurants, car dealerships, utility companies and other merchants that also follow the same practices to collect the money that they’re legally entitled to collect.
CFPB Singles out Payday Lenders for Common Creditor Practices
Although there is some truth that consumers suffer from repeated creditor attempts to get their legally authorized money from bank accounts, the blame for these exorbitant bank charges must be shared by the consumers themselves and the banking industry. After all, the banks are the ones that receive these overdraft penalties and not the lenders or other merchants that are merely trying to collect their money. Bounced checks for rent, utility payments, mortgages, credit card installments and car payments are just as common as those for payday loans, but government agencies seldom attack local landlords for trying to collect their rents.
Banks charge multiple overdraft fees for relatively inexpensive-to-process electronic transactions. In fact, a report from The New York Times at NYTimes.com2 assigns the blame and profiteering on overdraft fees squarely on the banking industry. Banks rely heavily on overdraft fees, and the biggest consumer banks collected around $11 billion in 2015. Hidden banking costs often include transaction fees, check-cashing fees, overdraft penalties, late fees on lines of credit and many other surcharges that average consumers don’t expect and can’t afford. At one point, banks even collected overdraft fees when customers tried to overdraw from their debit or credit cards until Congress outlawed the practice.
The Usual Suspects Misinterpret Data Against Payday Lenders for Political Gain
It’s hardly surprising that Democratic Party nominee Hillary Clinton and her short-list of vice-presidential aspirants quickly attempted to turn the CFPB’s charges against the payday lending industry to political advantage. According to an article posted on Law360.com3, Clinton commented, “abusive payday lenders have for too long been a drain on the resources of families in need.” Senator Elizabeth Warren, D-Mass, a leading vice-presidential contender for the Clinton ticket and leader in the fight against payday loan companies, tweeted in her favorite, soundbite-friendly Twitter forum that the CFPB “took a big step to protect consumers from predatory payday loans.”
Many Stakeholders in Finance and Politics Oppose the CFPB and Support Payday Loans
There’s a groundswell of anti-CFPB sentiment, and an article posted on Americanbanker.com4 mentioned a group called the American Action Network that opposed the CFPB and ran a popular ad that depicted a long line of borrowers waiting to be denied loans by officials at the CFPB.
In practical terms, many opponents of the CFPB oppose the agency because they feel it will limit access to credit for many Americans–especially those who don’t have other resources or stellar credit scores.
Opponents see the latest charges from the CFPB as just further evidence of the agency’s political motivations and pursuit of unprecedented power to regulate people’s lives. Everyone hates hidden charges, but almost every company charges them in some manner.
Hidden Costs Permeate Every Area of Modern Life, so Don’t Blame Payday Lenders
Standard practices in almost every industry involve assessing penalties, late fees, hidden charges and higher costs for people who don’t follow the terms of their contracts. Singling out the payday industry for criticism for overdraft charges that these lenders don’t even set or receive is the height of political deception.
The banking industry grows fat on bank overdraft charges, and local branch offices seldom bounce one large check when they can bounce several smaller checks and earn multiple overdraft fees. Customers know that these charges will get started, so it’s hypocritical and mean-spirited to criticize payday lenders for common merchant practices of presenting checks multiple times for payment.
In soundbite terms, opponents of the latest charge against payday lenders might tweet, “Get real, and call me when you’ve cleaned your own house.” Find out more about the topics of CFPB regulation and the payday industry at PersonalMoneyStore.com.