A battle is about to ensue as Republican lawmakers and lobbyists prepare to fight it out over legislation designed to curb payday lending. The Consumer Financial Protection Bureau plans to issue a ruling that would put a big dent in the profits of the $6 billion payday loan industry.
Lobbyists who represent payday lenders say the ruling could “wipe out” payday lending and force low-income Americans to seek short-term lending elsewhere, such as loan sharks. Individual states currently oversee the payday loan industry.
David Shaul, an executive with a trade group that represents payday lenders said he and his group will do everything they can to make sure the rule is not enacted, up to and including lawsuits. Shaul says is the argument that could build a foundation for litigation is the CFPB never took into consideration the opinions on payday loans from consumers. The CFPB had no comment, but records show the agency followed the law.
However, Republicans in the House added an amendment to a recent bill that prevents the regulation of the payday loan industry by the CFPB. Republicans also plan to draft a bill that would ban the CFPB from ever enacting regulation against the payday loan industry. Under the Congressional Rule Act, Republicans plan to repeal the new regulations against the payday loan industry.
Many low-income Americans from rural communities cover emergency expenses using short-term loans that they pay back on their next payday. However, many of these Americans get trapped in a never-ending cycle of debt since interest rates on payday loans can go as high as 400 percent. Often times these low-income Americans will take out new payday loans to pay old loans.
The new rule would require payday lenders to conduct background checks to make sure borrowers can afford to pay back the high-interest loans. The rule also limits the number of loans a company can give to one single person.