Consumer Financial Protection Bureau lifts restrictions on payday loans: NPR

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The Consumer Financial Protection Bureau has announced that it will reverse Obama-era restrictions on payday loans, which can trap consumers in a cycle of debt.



MARY LOUISE KELLY, HOST:

Earlier this month, the Consumer Financial Protection Bureau announced it would reverse Obama-era restrictions on payday loans. Stacey Vanek Smith and Cardiff Garcia of Planet Money’s The Indicator tell us what the regulations would have done for consumers and what it’s like to be in a cycle of debt with payday lenders.

CARDIFF GARCIA, BYLINE: Amy Marineau took out her first payday loan almost 20 years ago. Amy lived in Detroit with her husband and three small children. She said the bills had started to be overwhelming.

STACEY VANEK SMITH, BYLINE: Amy went to the payday loan store to see if she could get a loan, just a little one.

AMY MARINEAU: I was under the impression that yes, I can pay this bill.

VANEK SMITH: Amy says she felt like she could breathe again, at least for a few weeks. That’s when she had to pay the lender back with interest, of course.

MARINEAU: You have to pay 676.45. That’s a lot of money.

VANEK SMITH: You still remember the amount.

MARINEAU: This 676.45 – it just popped into my head.

GARCIA: That extra $ 76.45 was just the interest on the loan for two weeks. Play this for a year, and it’s an annual interest rate of over 300%.

VANEK SMITH: But when she went back to the payday loan store a few weeks later, she felt like she couldn’t pay it back yet, so she took out another payday loan to pay off the $ 676.45. .

MARINEAU: Because something else went wrong. It was always something – something happening, which is life.

VANEK SMITH: Amy and her husband started using payday loans to pay off credit cards and credit cards to pay off payday loans. And the amount they owed kept climbing.

MARINEAU: You feel defeated. You say to yourself, when is this going to end someday? Will I ever be financially stable? Will I ever get there?

GARCIA: And that’s of course why the CFPB, the Consumer Financial Protection Bureau, had planned to put in place payday lending regulations later this year. These new rules were announced under the Obama administration and would have restricted who payday lenders can lend to. Namely, they could only lend to people who could prove a high probability that they could repay the loan immediately.

VANEK SMITH: What difference would these regulations have made in the industry?

RONALD MANN: I think it would have made a big difference.

VANEK SMITH: Ronald Mann is an economist and professor at Columbia Law School. He has spent over a decade studying payday loans. And Ronald says the regulation would have essentially ended the payday lending industry because it would have wiped out about 75 to 80 percent of the payday loan customer base.

MANN: I mean, these are products that are – there’s a good chance people won’t be able to refund them.

VANEK SMITH: Ronald says that’s exactly why about 20 states have either banned payday lending altogether or have really restricted it.

GARCIA: On the other hand, over 30 states don’t really have any restrictions on payday loans. And in these states, payday loans have become huge, or, you might say, oversized.

MANN: The number of payday loan stores is about the same as the number of McDonald’s.

VANEK SMITH: Actually, there are more payday loan stores than McDonald’s or Starbucks. There are currently nearly 18,000 payday loan stores in this country.

MANN: So I think what you really need to see is take a step back and say or ask, why are there so many people in our economy struggling so hard?

VANEK SMITH: People like Amy Marineau.

MARINEAU: The turning point for me was having to live with my mother again at 43 and not being able to take care of our family as we wanted.

GARCIA: Amy says that at that point she decided to never lend payday again. She went bankrupt. And since then, she says, she has been incredibly disciplined on her budget. She and her family have their own home again and she currently has two jobs. She says they all live on a very tight budget – just the basics.

VANEK SMITH: Stacey Vanek Smith.

GARCIA: Cardiff Garcia, NPR News.

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