Letter: Rep. Peterson is trying to relax restrictions on payday lenders
I was startled to read that Rep. Collin Peterson, D-Minn., is co-sponsoring legislation to repeal the Consumer Financial Protection Bureau's defense of vulnerable constituents from predatory "payday lenders." Such lenders provide loans to people stricken with unexpected expenses, and typically demand payment on the borrower's next payday. The cost of these loans is such that borrowers, who commonly seek out payday or auto title loans because their circumstances make it difficult for them to borrow from more reputable lenders, struggle to repay the original loan and become trapped in a cycle of debt.
The website of one such lender (CashNetUSA) posts a chart showing the cost to borrow $100 for 10 days; while the initial $15 charge seems low, it represents an annual percentage rate of a whopping 548 percent. Those who scramble to find an extra $100 at short notice are no more likely to come up with $115 by the time payday rolls around, and the CFPB reports that more than four out of five payday loans are re-borrowed within a month.
Borrowers who have taken out a car title loan (the borrower uses their car title or equity as collateral for a small, short-term loan) can also find themselves on the hook for additional costs like a mandatory "roadside service plan."
If a borrower is unable to pay off the loan during the initial loan period, a "rollover" loan may be offered, but each such extension brings new fees and interest.
A borrower who decides to walk away from the escalating cost loses their vehicle, and anyone in the area can attest how difficult it can be to keep a job without a car if your work shift falls outside the bus service schedule or you need to take a child to daycare.
Our country is finally recovering from the 2008 financial crisis that resulted from lax lending and inadequate regulation, and the rules proposed by the CFPB (to ensure that someone seeking a payday or auto title loan has the wherewithal to repay it while also covering obligations like rent and child support) seem like common sense to me.
Rather than restricting protections for cash-strapped consumers, I'd like to see Peterson supporting efforts to improve financial education as well as publicize lower-cost loan alternatives.
Ray lives in Moorhead.