Richard Cordray, CFPB Chief, Promises New Scrutiny of Banks That Make Payday Loans
January 19, 2012
Consumer Financial Protection Bureau director Richard Cordray, speaking in
Birmingham, Ala., this week at the agency's first public hearing, pledged to
turn the heat up on payday lenders -- including a select few traditional banks
that have started to offer their own version of the short-term advances. Those
banks have tried to differentiate their cash-advance products from those of
payday lenders because of the way in which they are structured, but consumer
advocates do not buy that argument. Based on its data, the Center for
Responsible Lending finds that bank payday lenders are bound to fall victim to
the same cycle of debt that befalls traditional payday customers. The
statistics, purchased by CRL from an independent vendor, show that bank payday
borrowers take out 16 loans and are mired in debt 175 days out of the year -- or
twice as long as the Federal Deposit Insurance Corp. considers healthy. "The
very structure of a bank payday loan makes it likely to trap customers in
long-term debt even while the bank claims that the loans are meant for
short-term use," noted CRL senior policy analyst Rebecca Borne. Moreover,
because the bank model requires the borrower to have a checking account and to
have pay and/or benefits deposited directly into that account, the risk of
default is relatively low -- meaning that the rates banks charge for this
service are strictly for profit. "We recognize the need for emergency credit,"
Cordray acknowledged at the Jan. 18 event. "At the same time, it is important
that these products actually help consumers, rather than harm them."
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