CFPB May Scrap Underwriting Requirements for Payday Loans
Inside Sources cited Policy Analyst Daniel Press on his paper, How the Consumer Financial Protection Bureau’s Payday Loan Rule Hurts the Working Poor.
Daniel Press, a policy analyst with the Competitive Enterprise Institute (CEI), published a paper last year outlining how the CFPB ignored some aspects of payday lending research to support its payday lending rule, like the fact that 80 percent of payday loan users said the loans were easy to repay and only 2 percent said they disliked the loans “because they made it too hard to get out of debt,” according to surveys conducted by economists on the Federal Reserve’s Board of Governors.
Press argues that nixing underwriting requirements helps financially distressed borrowers to obtain the quick cash they need to survive, citing numerous studies that low-income and financially distressed borrowers consistently rely on payday loans when other credit options are unavailable.
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Restricting or eliminating the payday lending industry, he argues, would only hurt the poor and the financially struggling.
“Small-dollar loans, such as payday loans, predominately support employed individuals who are trying to stay afloat between paychecks when they run short on cash, often because of an emergency,” he writes. “For financially strapped consumers, small-dollar loans are often a better option than the available alternatives, such as overdrawing a bank account or defaulting on a different loan. Defaulting on traditional forms of credit can ruin a person’s credit score and cost more than taking out a small loan.”