The Consumer Financial Protection Bureau’s rule against small dollar loans will hurt the working poor most, warns a new report from the Competitive Enterprise Institute.
“Millions of Americans will have few other options to cover urgent expenses like rent, a car payment, or a medical emergency if regulators succeed in shutting off access to small dollar loans,” said Daniel Press, CEI policy analyst and author of the report, How the Consumer Financial Protection Bureau’s Payday Loan Rule Hurts the Working Poor. “Congress has an opportunity now to help consumers by stopping the pay day loan rule from going into effect.”
The CEI report discusses the story of Ariane, a 22-year-old single mother from Oakland, California, who took out a small dollar loan to pay for an urgent car repair. Without that loan, and lacking access to any other savings or credit, she would not have been able to drop her daughter off at day care or get to work, and would likely have had to choose between losing her job or losing her apartment.
CEI argues that Washington regulators should look for ways to help people like Ariane have more and better options, not create additional barriers to economic stability. The report urges Congress to take action now to stop the CFPB payday loans rule from taking effect. The CFPB rule was published on November 17, 2017, and Congress has 60 legislative days to vote against the rule, with an expected deadline of March 5, 2018.
In states that allow and regulate payday loans, such loans are available to borrowers who have a job, a checking account, and a valid form of identification. Borrowers can take out a loan between $100 and $500 over a two-week period, with a fee that averages 15 percent of the borrowed amount. In surveys of payday loan users, 95 percent said they valued having the option to take out a short term loan as a valuable financial safety net.
View the report, How the Consumer Financial Protection Bureau’s Payday Loan Rule Hurts the Working Poor by Daniel Press