Payday lenders preying on borrowers escape crackdown as rules rolled back
Asha Clark doesn’t have any savings. She works full time. She earns a minimum wage, making phone calls as a customer service representative. In Las Vegas where she lives, that’s $8.25 an hour. Sometimes, her paycheck isn’t enough to cover all her bills. Those are times that Clark would take out a payday loan.
In Nevada, there are more payday lenders than Starbucks and McDonald’s restaurants combined. They provide short-term loans that are meant to be repaid in full when the borrower gets their next paycheck. Each loan comes with fees – for example, about $75 in fees for a $500 loan. The trouble is that when borrowers like Clark get their check and spend most of it repaying the loan, they end up short on cash again. And so they take out another payday loan. Next payday, the same thing happens. The borrowers roll over that same $500 loan every two weeks, each time paying the fee. Over the span of the year, the fees alone can be as much as seven times the size of the original loan.
It’s those fees that got Clark in trouble. The payday lender was automatically deducting the fees from her checking account every two weeks, but the money wasn’t there. That triggered overdraft fees.
“Then they tried to run it again and then you get another overdraft fee and then the remaining checks bounced,” said Clark. “So I had to close the bank account down ... and stop paying the loan altogether.”
Now Clark, 39, is without a checking account, has bad credit and doesn’t qualify for a credit card. All she has is a prepaid debit card.
Back in 2016, scenarios like this led the Consumer Financial Protection Bureau (CFPB) to propose a rule that would require payday lenders to find out if their customers had future income to pay off the loan. Under that rule, lenders would have to notify the borrowers before first attempting to take money out of their checking accounts. And if the money wasn’t in the account, they would only be allowed to make two consecutive attempts to withdraw the money before having to get permission for more withdrawal attempts. Also, borrowers who took out three loans in a short period of time would be required to go through a 30-day “cooling-off period” before being able to take out another loan.
The rule never ended up going into effect, delayed by President Trump’s administration. Now, parts of the rule are being rolled back by recently confirmed CFPB director Kathy Kraninger.
https://www.msn.com/en-us/money/markets/payday-lenders-preying-on-borrowers-escape-crackdown-as-rules-rolled-back/ar-BBU5SXb?li=BBnbfcN