State lawmakers around the country have tried to protect people from the spiraling debt they often take on with payday loans. But finding a solution hasn’t been easy.
Some states, including South Carolina, have put restrictions on the industry that provides short-term loans to people whether they appear able to pay them back or not. When they cannot, they take out more loans and their debt gets ever larger. Plus interest rates, when annualized, can be more than 400 percent.
But the payday loan industry is rich and powerful, and it is committed to keeping its hefty profits rolling in.
So it is good news that the federal Consumer Financial Protection Bureau has taken up the cause. Consistent regulation nationwide could be the most effective way to curb businesses that prey on people in financial crisis.
But it is very important that the CFPB research the issue thoroughly and write any rules meticulously without loopholes. They could learn a lot from state efforts to regulate payday loans and from Appleseed, a nonprofit network of 17 legal justice centers that advocates for the protection of people who are or who might become victims of predatory lending.
Its South Carolina center has helped bring national attention to the harmful practices of payday lenders in the state and worked with legislators to develop and adopt legislation reining in the payday lenders.
That 2009 law limited the number of two-week loans a person could assume to one at a time with a cap of $550 each. It established an online database to track the loans so that people couldn’t take out loans with multiple companies at the same time. Borrowers must wait at least one day between loans. Also, borrowers who can’t repay are allowed to enter a fee-free extended payment plan.
Appleseed’s statistics show that, before that law, more than 4 million such loans were made in South Carolina annually. The number last year was 1 million.
Still, half of all those borrowers took out more than 10 payday loans last year.
Sue Berkowitz of Appleseed in Columbia said that payday lenders continue to make “an awful lot of money.”
Payday lenders say that they provide financially strapped people an avenue for borrowing money when emergencies arise. They say restricting, or eliminating, the industry would actually punish those people.
That’s why Mrs. Berkowitz said that “we need to be looking at better ways to promote affordable credit that doesn’t trap people in debt.”
Meanwhile the CFPB plan to curb payday lending at the federal level is promising in that it would require that payday lenders verify borrowers’ incomes before approving a loan. If someone clearly cannot repay a loan, he shouldn’t be given one.