With college tuition rising to unprecedented rates and the workforce participation rate nearing a 40-year low, our nation’s young people are more reliant on private loans to finance their expenses now more than ever. President Bush and Obama’s fiscal irresponsibility got us into this economic mess, but millennials can at least count on the government to stay away from regulating private solutions to this government-created problem, right?
Wrong. President Obama’s Consumer Financial Protection Bureau (CFPB) is trying to rid the country of payday loans — the only option that many millennials have left to pay their bills on time.
“We’re on your side.” That’s the CFPB’s promise, but new documents released last week show the Bureau summarily dismissed over 98 percent of consumer testimonies while proposing sweeping changes to the rules governing short-term loan providers.
Under the Bureau’s “Tell Your Story” program, over 12,000 testimonials were submitted by real people regarding their experience with short-term loans. According to the Bureau’s website, this information would be used to collect consumers’ experiences, both pro and con, to allow them to respond to the needs of consumers and create a fairer marketplace. However, the overwhelming number of positive testimonies were pushed aside because the data did not support the Bureau’s agenda that seeks to place harsh regulations on the payday loan industry.
Through a December 2015 Freedom of Information Act (FOIA) request filed by the short-term lending trade association, Community Financial Services Association of America (CFSA), five years of consumer submissions were finally made public. The newly-released documents revealed the “Tell Your Story” program has backfired on the Bureau. In all, 12,308 (98 percent) of the submissions extolled the positive relationship consumers have with payday lenders.
That’s right: The government is literally evil.
The CFPB did not like these results, so instead they hid them from the public’s view and moved forward with the Obama Administration’s ongoing narrative that payday lenders take advantage of low-income and minority Americans. This is contrary to the CFPB’s own findings. Of the 240 (2 percent) of negative submissions, 84 comments were actually complaints about other industries that had been improperly classified; another 74 comments were complaints directed at payday lending scams and unregulated lenders.
The Bureau refuses to acknowledge the essential services payday lenders provide to their customers. Payday loans are short-term, relatively small-dollar loans that average $375. The loans help people cover emergencies and other unexpected expenses like car repairs. A Pew survey found that approximately 1 in 20 adults, or 12 million Americans, use a payday loan service every year. Most borrowers are relatively young and earn less than $40,000, and the most common borrower is a white female. In many circumstances, borrowers find that they save money by using a payday loan rather than paying late fees on credit cards, bank overdrafts fees or reconnection fees for utilities.
In another nationwide survey, the GSG/Tarrance Group asked 1,000 payday loan borrowers (including over-samples of 321 African American and 300 Hispanic payday loan borrowers) about their experiences with short-term loans. The survey found 96 percent of participants considered payday loans to be highly useful in managing their finances, and most would recommend the service to friends and family. But the CFPB chose, once again, to ignore this data in favor of perpetuating the misleading theory that payday lenders are “preying” on their borrowers. Clearly, the Bureau is not interested in listening to the very people they claim to be protecting.
Despite the Bureau’s own findings to the contrary, on June 2 it released the Small Dollar Lending Rule proposal, which is a further attempt to over-regulate and complicate the payday loan industry. In some respects, the new regulations will make obtaining a credit card with a $10,000 limit easier then it would be to get $100 payday loan. Payday lenders are being tasked with conducting a full-fledged financial analysis of every customer walking through their door regardless of the loan amount. The lender is expected to not only determine if the borrower has the ability to repay the loan according to its term, but also discover whether they have the money to pay off all of their other bills and normal living expenses.
With the new rule, the borrower must submit a written statement of their income, housing expenses, all outstanding debt and child support. The lender is also required to obtain a national credit report and, in turn, report customer data back to all credit tracking agencies. Forcing payday lenders to complete this exhaustive analysis would be extremely time-consuming for the borrower and quite costly for the lender. Considering the average payday lender charges only $15 for every $100 loaned, it’s not hard to see that it would be nearly impossible to run a profitable business under the CFPB’s proposed regulations.
The 12 million people that continue to use payday loan services each year and the 12,308 people who took the time to tell their story on the CFPB website deserve to be heard. People are happy with the ease and availability of payday loans and consider them an important part of their financial life. Consumers understand these uncomplicated loan products and make informed decisions when it’s appropriate to use this type of credit.
The Consumer Financial Protection Bureau needs to stop taking their direction from special interest groups and consumer activist organizations that have a stake in destroying the payday loan industry. Instead, they need to listen to the millions of satisfied customers that want to continue to have access to short-term loans — the only thing that’s keeping many of them from going bankrupt in these tough economic times.
