Payday Loan Crackdown on Freedom to Get Dangerously Debt: Don Pittis


Moral objection to predatory lending is not a flash in the pan. The prohibitions of the practice go back to the founding documents of the great religions of the world.

But even as parts of the world become more secular, there appears to be a growing backlash by government and industry against the activity of charging poor people high interest rates for desperately needed loans. .

A new push by the US Consumer Finance Protection Bureau to crack down on payday loans is drawing new attention to an old problem. In a statement released last week, titled Consumer Financial Protection Bureau Proposes Rule to End Payday Debt Traps, the CFPB describes some new laws that the payday lending industry says would threaten its business model.

Although the rules are secular, they are supported by groups as less radical as Catholics, Jews, Lutherans and Presbyterians and hundreds of religious communities that are part of an economic watchdog called the Jubilee USA Network.

“No one should take out high interest loans that can make a bad economic situation worse,” Jubilee executive director Eric LeCompte said in a press release Friday.
Payday lenders get their name from the idea that people need emergency cash to get by until their check arrives, but borrowing can become a habit and non-repayment carries penalties. which may eclipse the original loan. (SRC)

The industry group representing payday lenders is outraged and says the CFPB plan, which could go into effect next year, has the potential to “wipe out” the company.

Spokesman Dennis Shaul called it “a blow to consumers, as it will cut off access to credit for millions of Americans who use small loans to manage a budget deficit or unexpected expenses.”

Moral divide

He pointed the finger directly at groups like Jubilee.

“From the start, this rule was imposed – and in some cases written – by self-proclaimed ‘consumer advocacy’ groups who sought to eliminate payday lending,” Shaul said.

Jubilee, on the other hand, only says that some, but not all, payday loans are predatory. But the group does not hide that, if it likes the proposal of the CFPB, this is only the beginning.
Payday lenders have proliferated across Canada, most of them in poorer neighborhoods. (SRC)

“Some payday loans are actually predatory loans,” LeCompte said. “Predatory practices should be discouraged and these rules are a good first step.”

The key new rule backed by the anti-poverty religious group sticking to the industry’s throat is a requirement that lenders must be able to show that a borrower has enough income to repay the loan while still meeting financial obligations. basic expenses such as food.

In effect, it would allow lenders to distribute cash to anyone who really needs it in the short term until their check arrives in the mail. But they would not be allowed to lend to people whose repayment would push them into starvation and homelessness.

State nanny?

The lenders group sees two problems there. One is that doing all of this research would be prohibitively expensive. The other is that it undermines the right of individuals to make their own decisions about whether or not to borrow. Sure enough, this is a nanny state rule.

“This… sets a dangerous precedent for federal agencies that craft regulations that impact consumers,” the group of lenders said.

In 2014, comedian John Oliver took a vicious hit in the convenience businesses, which he said had proliferated beyond the number of Starbucks and McDonalds.

But religions have criticized the practice for much longer. In Islam, the concept of riba is still alive. Many Christians and Jews have heard of usury, which dates back thousands of years to the Old Testament. Hinduism and Buddhism have also historically condemned loans at interest.

“Do not take usury from it, nor increase it; but fear your God; so that your brother can live with you. One of the many very specific prohibitions against such profitable loans.

Over the past few hundred years, bankers have managed to sidestep religious rules, with economics defining interest as the essential price for having something now and paying for it later.

In Canada, payday loans are controlled by each province. Last month, Alberta proposed cutting payday fees by almost half, but like in the United States, lenders complained that it would shrink their business and put borrowers in the hands of unscrupulous loan sharks.

Avoid whenever possible

The Canadian Government’s Financial Consumer Agency has plenty of advice on payday loans, basically to avoid them at all costs.

The problem is, it’s hard to live without money, and people who are desperate for money sometimes find it hard to see that taking out a payday loan that they can’t pay back just shifts the gap. problem a few weeks or months in the future. And because of crippling fees, payday customers choose for themselves. Borrowers who can do this will find cheaper sources of money.

From a business standpoint, there are few things as profitable as serving desperate customers who can’t resist. Britain’s opium trade was built on this. The tobacco and gambling industries continue to provide good returns for their suppliers.

And whether you are religious or not, the difficult question remains a choice between the freedom to exploit and be exploited versus state intervention to reduce moral injustice.

Follow Don on Twitter @don_pittis

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