The Consumer Financial Protection Bureau has put payday lenders on notice, confirming that "we are now in the late stages of our considerations about how we can formulate new rules to bring needed reforms to this market."
The remarks from CFPB director Richard Cordray, prepared ahead of his address at a March 25 field hearing on payday loans in Tennessee, come on the heels of the watchdog's most recent -- and most thorough -- look at the industry. The resulting report refutes the idea that payday loans benefit borrowers, finding instead, according to Cordray, that "all too often ... the consumer ends up being hurt rather than helped by this extremely high-cost loan product."
Based on analysis of 12 million loans issued by lenders in 30 states, the findings reveal that most payday customers borrow repeatedly, with 80 percent renewing their loans within 14 days and fully 50 percent taking out at least 10 loans in a single year. "The stress of having to re-borrow the same dollars after already paying substantial fees is a heavy yoke that impairs a consumer's financial freedom," Cordray said.
How the CFPB will try to rein in the industry remains to be seen. It began overseeing payday lenders in 2012, but does not have the power to directly limit how much interest they can charge. It could compel lenders to give borrowers more time to pay back the debt or require them to vet consumers' ability to repay in the first place.