Opinion Pieces

A business model should not be based on profiting from customers’ misery. Yet payday and car-title loans are designed to trap borrowers in a cycle of re-borrowing and debt, often charging interest rates of more than 300 percent. Four out of five payday loans are renewed or “rolled over” within 14 days. There is an array of better credit options, including credit cards and small loans from credit unions.

Taking out a payday loan makes a person more likely to delay needed medical care, incur overdraft charges, lose their bank account, default on their credit card, or file for bankruptcy. The payday industry preys on financially vulnerable people and worsens their financial problems.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 established the Consumer Financial Protection Bureau to stop the types of financial abuses that led to the 2008 crash. The law provided the consumer watchdog with explicit authority over payday loans. As this timeline shows, over the course of more than five years, the CFPB laboriously conducted research and analysis, engaged with and took advice from the public and a variety of stakeholders, developed, and finally, in October of last year, issued an administrative rule that reins in the payday loan debt trap. The Payday Rule adopts a commonsense way to disrupt the debt trap: lenders would have to verify a borrower’s ability to repay a loan. This requirement has overwhelming supportfrom voters of all political persuasions.

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