The Center for Responsible Lending, among other groups, believes lenders should determine a borrower’s ability to repay any loan, and these loans should not be an exception, said Graciela Aponte-Diaz, the group’s policy director for California.
But Diane Standaert, director of state policy for the Center for Responsible Lending, said many payday borrowers turn to these less risky options only after they get in trouble with payday loans. "I think by the time people utilize their options, they're trying to get out of a very difficult situation from a loan that is essentially designed to be nearly impossible to escape," she said.
The American public has a very low opinion of payday lenders, says a new poll out from the NCLR Action Fund, Americans for Financial Reform, Center for Responsible Lending, and the NAACP. The poll, which comes on the heels of a proposed Consumer Financial Protection Bureau rule to reign in predatory lending, shows Americans see little value in the services payday lenders provide.
Fifteen states and D.C. currently ban the product outright or limit it to 36% APR or less. "But payday lenders are always trying to roll back these state interest rate limits," said Rebecca Borné, senior policy counsel at the Center for Responsible Lending.
"From a broad policy standpoint, looking at the economics of lending, there is a trade-off between interest rates and costs to have a profitable model," said Mike Calhoun, president of the Center for Responsible Lending, who cited the "congressional recognized standard" of 36% in the Military Lending Act. "High interest rates means a large percentage of your loans are unaffordable."
“At the heart of this proposed rule is the reasonable and widely accepted idea that payday and car title loans should be made based on the borrower’s actual ability to repay – while still meeting other basic living expenses,” Mike Calhoun, president of the Center for Responsible Lending, said of the new CFPB rule.
Fees charged by the payday and car title loan industry cost Ohioans more than $500 million a year, mostly affecting residents who are already struggling financially, according to a Center for Responsible Lending report released last year.
In addition to the CFPB report, the Center for Responsible Lending issued a report of its own this week which found that every year, consumers lose $8 billion in fees to payday and car-title loans. Of that, car title loans represent $3.9 billion in fees each year.
Delvin Davis, senior research analyst at the Center for Responsible Lending, said even a high-interest credit card might be a better option than a car title loan. “I would avoid them at all costs,” he said. “Once you are into it, it’s hard to get out of it.”
Google announced Wednesday that it will ban all payday loan ads from its site, bowing to concerns by advocates who say the lending practice exploits the poor and vulnerable by offering them immediate cash that must be paid back under sky-high interest rates. The decision is the first time Google has announced a global ban on ads for a broad category of financial products.