This week MECEP urged federal regulators to establish strong protections against abuses by payday lenders. Their loosely regulated, short-term, unsecured loans trap people in a cycle of debt. These predatory lenders especially target seniors, veterans, women, and low-income Mainers, forcing them deeper into poverty.
A new Consumer Financial Protection Bureau (CFPB) report, Online Payday Loan Payments, proves how on-line payday loans financially harm consumers beyond high interest rates. They also rack up bank penalty fees and force account closures.
Payday borrowers are frequently unable to repay their loans at the end of their one- or two-week loan term. They routinely take out another loan to pay off the first. The majority of payday loan borrowers take out 10 loans a year at crushing interest rates.
And on-line payday lenders operate on the regulatory fringe. Unlike traditional bank and mortgage lenders, the law does not require them to verify that borrowers can pay back their loans on time, without re-borrowing, before making a loan. And these payday lenders require direct access to borrowers’ bank accounts, enabling them to withdraw payments regardless of whether borrowers have the funds.
CFPB’s latest report analyzed on-line payday lending over an 18-month period and found that these lenders use their direct access to borrowers’ accounts to make repeated withdrawal attempts, regardless of account balances. Borrowers without the financial wherewithal to repay their usurious loans incurred bank penalties and lender’s fees for repeated debit attempts. More than one-third of online borrowers lost their accounts due to excessive penalties and fees caused by the lender.
Anticipating stricter rules they expect CFPB to issue this spring, some payday lenders have begun to migrate payday loans to long-term loans to keep borrowers trapped in prolonged unaffordable debt.
MECEP is one of nearly 150 consumer advocacy and civil rights organizations representing thousands of Americans in more than 45 states that urged CFPB Director Richard Cordray, in an April 21 hand-delivered letter, to prevent payday loan practices that trap borrowers in debt by design. It’s time to stop the predatory lenders who prey on the most vulnerable among us.