March 26, 2015 is a day that will live in infamy. Well, maybe not nuclear infamy???but for online payday lenders, it???s catastrophic.
The Consumer Financial Protection Bureau (CFPB) has put out a set of new rules that will wreak havoc on small dollar loan companies. The CFPB claims that the new rules will serve as two important functions ??? prevention and protection, which are then broken down by two categories ???Short Term??? and ???Longer Term??? requirements.
Richard Cordray, the Director of the CFPB said, ???today the Consumer Financial Protection Bureau (CFPB) announced it is considering proposing rules that would end payday debt traps by requiring lenders to take steps to make sure consumers can repay their loans.???
The new short-term ???prevention??? requirements, more or less, act like a strict father by making it much more difficult for the consumer to actually acquire their needed loan. The new requirements call for a cooling off period in-between loans and determine the borrowers other financial obligations, while the ???protection??? requirements cannot keep consumers in debt on short-term loans for more than 90 days in a 12-month period. Rollovers would be capped at two ??? three loans total ??? followed by a mandatory 60-day cooling-off period. The second and third consecutive loans would be permitted only if the lender offers an affordable way out of debt.
The longer-term prevention & protection requirements act similarly.
Reading this, you are probably wondering, ???What???s wrong with this????
Well, The CFPB and Director Richard Cordray are extremely controversial because they are set up in a way that they don???t have to answer to Congress and continuously act way beyond the scope of the law. Reasonable regulation, not annihilation, of the online loan industry should be the goal, but these new proposals, in all likelihood, will eliminate the small dollar lending industry???and if that happens???hello black market lending???good luck with that.
Consumers want convenient and flexible credit products. Last year, $18 billion in loans were extended to customers using Al Gore???s Internet. The FDIC reports that 68 million adults were considered unbankable and underbanked in 2013. The Bureau should solve the problem of the people who can???t pay rather than punish millions of consumers who use short-term credit responsibly and not bog them down with complex and burdensome paperwork. Think of the trees!
The research used in creating this rule isn???t even based on correct research, and is ultimately illegal because the CFPB does not even have authority to issue this rule. The proposal isn???t based on any current research on today???s market conditions. I bet that Mr. Cordray missed the memo on that one.