Last month, the Consumer Financial Protection Bureau (CFPB) proposed a plan to eliminate the Payday lending regulations created by the Obama Administration in 2017. Consumers and small businesses alike should rejoice in the opportunity for more flexible access to credit, and for an end to these potentially harmful regulations before they have a chance to go into full effect later this year.
Payday loan regulations were created under the false pretense that without stringent limitations, consumers who lack a “requisite level of understanding” would over-borrow, resulting in a massive “debt trap.” But, this could not be further from the truth. Access to short-term loans is good for both consumers and businesses. Recent surveys show that one-third of Americans are stressed about finances and 60 percent do not have enough cash on hand to cover an unexpected $500 expense. Additionally, small businesses who often need access to quick credit to cover payroll for a month benefit from the ability to take out Payday loans.
Obtaining a payday loan is and should be remarkably simple. A borrower needs to be able to prove they have an income, a checking account, and an ID and then they can obtain a short-term loan for a small fee of nearly $15 for every $100 borrowed. The CFPB’s proposed Payday regulations would have forced lenders to verify a borrower’s income, any major financial obligations, and borrowing history before issuing a loan. Had these regulations gone into full effect, it would have almost certainly crippled the entire loan industry by making the costs of issuing a loan too high for Payday lenders.
Ensuring access to short-term credit benefits consumers and businesses. Any unnecessary restrictions and costly fees would only force borrowers to look to less-desirable, higher-cost options.