Payday Loans: Federal regulators, industry should work together before new rules take effect

It wasn't all that long ago that nobody knew what a payday loan was.

Sure, there were finance companies and small lenders around. But they made installment loans to be paid back over several months, maybe a couple of years. Your payment included interest and principle. The interest rate was high-as much as 30 or 40 or even 60 percent. But if you needed money they were there.

Then payday loans popped up. You wrote a postdated check and got cash for two weeks at outrageous interest-in the hundreds of points a year. More than you would pay a mobbed-up loanshark.

But these companies prospered. The need was out there. A lot of folks needed cash to keep the lights on, buy food, pay rent, buy essential medication. The rate didn't matter. They were just trying to survive, and the banks and other major lenders offered nothing for them.

Over the years states have cracked down on payday lending. The stores disappeared from the Arkansas side of Texarkana more than five years ago after then-

Attorney General Dustin McDaniel took them on. Now the federal government is forcing the issue.

The Consumer Financial Protection Bureau issued new rules for the industry scheduled to take effect in 2019. The rules do not require Congressional approval.

The CFPB determined the biggest issue was borrowers taking out more loans than they can repay and then rolling the loans over and over again by just paying interest fees and not the principle. That means borrowers could pays hundreds, even thousands, of dollars and still owe the entire amount of the original loan.

So the new regulations will limit the amount and number of loans a person can take out within a specific time frame. Larger loans will be subject to lenders acting more like banks and undertaking appropriate checks to see if the borrower can repay-something that isn't currently done because the interest and fees are so high they cover risk of default.

The industry says this will put them out of business and they plan to pursue legal action. We will see how that works out.
In our view the Wild West days of payday lending should be over. But there must be a venue for the working poor to get short-term money when they need it. Often they don't make enough or can't pass credit checks for a conventional loan. Many don't have bank accounts and banks don't want to lend just a few hundred at a time anyway. And while we may look askance at the rates charged by payday lenders, the fact is it's often cheaper to get money from one of their storefronts than it is to pay overdraft penalties and "overdraft protection" fees that those who do have bank accounts must pay. For many Americans payday lending is literally the only thing that makes sense.

There is still time for the industry and the feds to work together on this. Things are not going to stay the same but there is room for compromise. Both sides should be willing to do so both for the good of consumers and because it just makes business sense.

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