Consumer advocates and regulators have long complained about the payday loan industry, saying that the small loans -- which carry high fees and often must be repaid in full in about two weeks -- trap borrowers in a cycle of debt. The Center for Responsible Lending (CRL) has been lobbying to curb the business on a national level, and it believes a sea change is underway. In the last month alone, the Federal Deposit Insurance Corporation (FDIC), the Consumer Financial Protection Bureau (CFPB), the Department of Justice (DOJ), and the Federal Trade Commission (FTC) all have taken actions against payday lenders.
“Payday loans, regardless of whether made by banks, stores, or online, are designed to create a destructive cycle of debt,” said Diane Standaert, senior legislative counsel at CRL. “Payday loans drain over $3 billion in fees a year, mostly due to churning individuals every payday.”
The FTC filed an amicus brief opposing the lender Western Sky, claiming that it forced borrowers to settle disputes via tribal arbitration. On Sept. 25, the DOJ proposed a settlement with U.S. banks involved in processing payday loans. On Sept. 26, the CFPB ruled that tribal payday lenders must respond to requirements of a civil investigation. The FDIC recently sent letters to the banks under its supervision, reminding them that they must ensure they are not facilitating illegal activity such as fraud. The FDIC and Office of Comptroller of the Currency are also finalizing rules for bank payday loans, and the CFPB is considering a new rule for all types of payday loans. “Regulators at all levels have shown that payday lenders are not above the law, and neither are the banks that abet them,” said Gary Kalman, CRL executive vice president for federal policy.