Breaking the Debt Cycle: CFPB Targets Payday Lending

Get involved in the Consumer Financial Protection Bureau’s efforts to reform payday lending.

I need[ed] some money ASAP.  So I called my Mom.

“Mom, I need some money!”

And, she’s like, “No, why don’t you just go ahead and get a pay day loan?”

“What’s that”? 

“You just borrow some money from them and then you pay them back once you get your money on payday.”

I said, “Oh, okay sure.” So I do it, I get my little pay day loan.

This excerpt from a community-based research project involving UC Law Professors Emily Houh and Kristin Kalsem, and Public Allies Cincinnati shows how easy borrowing money can be.  The dialogue is from a “zine,” a small black and white publication that graphically depicted interviews about payday lending, a financial resource relied upon primarily by low-income communities of color.

Almost 30% of Americans don’t have banks, or, if they have them, rely heavily on alternative financial systems like payday loans, rent-to-to-own, or car title loans to make ends meet. Most do so because they don’t believe they have enough money to open a bank account. In addition, these banking alternatives are easy to use and conveniently located.

But these pluses come with significant minuses.

Richard Cordray, Director of the Consumer Financial Protection Bureau (CFPB), explained at a hearing:cfpb_logo

For borrowers who are already living paycheck-to-paycheck, it may be difficult to repay the loan and still have enough left over for other bills. Trouble strikes when they cannot pay back the money and that two-week loan rolls over and over and turns into a loan that the consumer has been carrying for months and months. Soon they are living off money borrowed at a rate of 400 percent.

As Cordray suggests, such alternatives to banking come at a heavy cost—they contribute to economic precariousness affecting too many low income people.  Here, I’ll turn back to the zine’s narrative:

So I go over there…sign my life away on the paperwork.  So, I pay my electricity.  But then more bills come in.  So then I’m like “I can’t pay all of y’all back.” I’ve got this bill, and I pay a little of it back. So that’s when the cycle kicks in.  Because when you pay them all back you don’t have the money to begin with, plus the pay day loan store’s extra fee, which is usually $100.  You can’t afford that, because you couldn’t even afford what you had to borrow.  So that’s when you get caught in the cycle. 

Based on the CFPB’s investigation and outreach in this area, the agency has drafted proposed regulations to protect consumers.  But before they can become final, the law requires the CFPB to receive comments in a process Professors Houh and Kalsem described in a recent op-ed in the Cincinnati Enquirer.

If you’ve been “caught in the cycle,” know someone who has, or otherwise has been affected by these types of loans, now is the time to get involved.  Read the proposed regulation, Payday, Vehicle Title, and Certain High-Cost Installment Loans, and file comments—either by email or through the postal system—by October 7, 2016.  Information for filing comments can be found here.

Author: Verna L. Williams

Interim Dean, Nippert Professor of Law, co-founder and co-director of Cincinnati Law's Center for Race, Gender, and Social Justice. Professor Williams joined Cincinnati Law's faculty in 2001. She teaches Constitutional Law; Gender and the Law; and Family Law. Her research examines the intersection of race and gender in law and society.

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