Despite phased reopenings across the country, the economic fallout from the COVID-19 pandemic continues keeping unemployment too high and straining personal finances.
With the unemployment rate at 11.1% and a severe credit crunch ongoing, many people need access to affordable, short-term credit. While some may turn to bank loans or credit cards, more than 12 million Americans rely on payday loans each year to make ends meet. It’s telling that a number of states with mandatory stay-at-home orders have deemed payday lenders so vital to the economy that they’ve been declared essential businesses.
The good news is that the federal Consumer Financial Protection Bureau (CFPB) has just released a long-awaited rule governing payday loans, a final rewrite of the Payday, Vehicle Title, and Certain High-Cost Installment Loans rule. It retools the controversial payday lending rule put out in 2017 by Obama appointee Richard Cordray. The old rule would have stripped consumers of this source of credit and effectively forced them to choose between financial ruin or borrowing from illegal “loan sharks,” the kind that use unsavory methods to enforce loan terms.
The old rule was faulty and far from justified. It wasn’t based on consumer complaints or empirical survey data concerning consumer sentiment, and regulators failed to test the implications of the rule before imposing it. Beyond that, the welfare analysis supporting the rule was so flawed that the principal author of the research later disavowed it.
The worst provisions of the old rule were an onerous “ability-to-repay” requirement and the “payments” restriction that placed unrealistic limitations on a lender’s ability to collect payment from a borrower.
Read the full article at The Washington Times.