A new federal oversight committee seeks to keep a closer watch on payday loan stores and regulate their practices.
A payday lending expert at the University of Missouri says the newly created Consumer Financial Protection Bureau does not have the authority to cap interest rates, as some states have done, but the bureau does have the power to limit the number of loans a person can get as well as other aspects.
Brenda Procter is a consumer and family economics specialist.
Procter says people get stuck in a cycle of loans and interest fees and end up owing thousands for a couple hundred dollars of priniciple.
Procter says Missouri has the fifth-most payday lenders per capita. She says there are more payday storefronts than McDonald’s and Starbucks combined.
The U.S. Treasury Department has hired key leaders for the newly formed Consumer Financial Protection Bureau implementation team to help regulate depository institutions like banks and non-depository institutions, such as payday lenders. Procter says that while payday lending has become a serious concern across the country, the creation of the this bureau shows that the federal government is taking action to help fix the issue. Procter met this week with Elizabeth Warren, assistant to the President and special advisor to the Secretary of the Treasury, to discuss ways to help address the problem.
“[Payday lenders] are everywhere, particularly in our most vulnerable communities,” she says. “Many consumers get trapped in a cycle of debt that they cannot escape.”
Procter believes this new step of hiring a director to oversee non-depository institutions such as payday lenders and rent-to-own stores will give some focused attention to the issues that consumer advocates have requested for years.
“Historically, there has been virtually no regulation of payday lenders or other high-cost lenders at the federal level,” Procter said. “States have been left to deal with the problem, and many have struggled to enact any kind of meaningful legislation or regulation. For example, in Missouri, which has the fifth-most payday lenders per capita, consumers pay an average of 431 percent in annual interest for payday loans.”
Whiel the bureau does not have the authority to cap interest rates, as some states have done, she says they do have the power to regulate other aspects of payday lending, such as limiting the number of loans. She believes this is the first step in leveling the playing field between consumers and lenders.
“This is the first major federal entity to represent the people in the financial marketplace, which is fraught with hazards and challenges,” Procter says. “It remains to be seen how this will play out, but having a federal regulator looking over lenders’ shoulders gives consumer advocates some hope for the future.”