The period to submit comments to the Consumer Financial Protection Bureau (CFPB) pertaining to its payday loan proposal, which was unveiled back in June, is closed. The CFPB received an estimated one million remarks. This would be a record set for the five-year-old federal consumer watchdog agency.
The final tally has yet to be confirmed, but already payday loan critics are upset by the amount of comments in support of the short-term, high-interest loan business model. More than 200,000 comments have already been published online, and a large sum are actually in favor of payday loans.
Ostensibly, this has upset a lot of those who are against payday loans, particularly the Stop the Debt Trap campaign, a coalition of consumer groups that supports more stringent payday loan regulations. This group has attempted to generate more than 400,000 negative comments towards the business.
According to Stop the Debt Trap, they want to counter the large number of pro-payday loan comments. They argue that the supportive comments have been made by the industry and customers who have been coerced into making such remarks, though the latter has yet to be proven by anyone.
Jeff Merkley, Oregon Democratic Senator and a member of the Senate Banking Committee, stated in a conference call that many of the comments defending the industry have been started by lenders who offer payday loans for bad credit. His proof is what happened in Oregon, where he was Speaker of the House. Merkley noted that when the state passed payday loan regulations, the industry pushed back with false information and coercion.
The CFPB is expected to release a finalized version of its payday loan proposal. It could be enacted as early as next year. However, some members of Congress are pushing back, requesting that any federal regulatory framework be delayed by at least two years. Democrats are attempting to combat this plan.
More than 100 House Democrats penned a letter to CFPB director Richard Cordray, making the argument that payday loan rules are a necessity at this point because households are becoming too indebted.
“Though we applaud the CFPB for taking the necessary first steps to address predatory practices in the small-dollar credit market, we urge you to adopt a final rule with additional protections that will ensure responsible lending,” the Democrats wrote. “Only a comprehensive federal framework, free of harmful loopholes, can supplement existing state protections and help stop consumers from becoming trapped.”
Payday loan companies have been open with their criticism of the CFPB proposal. Lenders warn that the new rules would actually eliminate the industry altogether. This, lenders say, will force the most vulnerable consumers with urgent borrowing needs to access costly forms of credit, citing bouncing checks. Oftentimes a payday loan can serve as a lifeboat for those in financial destitute.
Opponents of the payday loan industry counter that by referring to the fact that a lot of these products come with 300 percent interest rates. The industry notes that this is essential because the funds are lent out for a short period of time to high-risk borrowers.
Right now, the CFPB rule is 1,200 pages long, and impacts the entire payday loan industry. Some say it goes too far, while others say it doesn’t go far enough.