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Payday lenders are in the spotlight -- and not in a good way.
The Consumer Financial Protection Bureau, or CFPB, now up and running with its new director, recently convened its first-ever field hearing to collect intel on the industry.
Held in Birmingham, Ala., the hearing coincided with the publication of a new CFPB field guide the bureau's examiners will use to make sure payday lenders comply with federal laws, according to a CFPB press statement. The guide details the types of information the examiners will collect to evaluate payday lenders’ policies and procedures, assess their compliance and identify risks to consumers.
In the statement, CFPB Director Richard Cordray said the bureau will be paying much more attention to payday lenders.
"We recognize the need for emergency credit," Cordray said. "At the same time, it is important that these products actually help consumers, rather than harm them."
Payday loans are short-term debts for relatively small amounts of money with through-the-roof interest rates. Traditionally, payday lenders operated in storefronts. Nowadays, however, these loans can be found online and at some banks.
Separately, a coalition of government agencies and nonprofit business and consumer groups in Missouri and Illinois warned consumers payday loans can have "long-lasting and devastating effects," trapping borrowers in a "revolving door of debt that can be difficult to escape."
A recent Better Business Bureau study found that weak laws in Missouri have attracted out-of-state lenders, who are "costing Missourians who can least afford it millions of dollars a year."
The coalition offered some tips for consumers who need short-term cash:
- Contact your creditor and request a payment extension or no-interest payment plan.
- Get a traditional short-term loan from a bank or credit union or use a credit card. These options aren't cheap, but they're typically less costly than a payday loan.
- Before you accept a payday loan, read the terms very carefully.
- If you believe you've been a victim of a scam, contact local and federal law enforcement agencies.
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