SEATTLE – Opponents of payday and car-title lending say they lead to financial abuse of consumers, and a new report supports new federal rules to combat the problem. In the report by the U.S. Public Interest Research Group, researchers analyzed close to 10,000 recent complaints made to the Consumer Financial Protection Bureau. They found that 91 percent involved aggressive debt-collection practices, bank-account closures, and/or long-term cycles of debt.
Bruce Speight, the director at WashPIRG, said payday lending is structured to set consumers up to fail.
“All too often, what we see with these loans is consumers not able to repay the loans and taking on more debt than they can afford and having to take on more debt to pay off the debt they already have, which is the debt trap that often see consumers fall into,” he said.
The report also found that around 15 companies accounted for more than half the complaints, many charging triple-digit interest rates. The report said some of the biggest offenders are doing business under the names CashNetUSA, NetCredit, Check ‘n Go, and ACE Cash Express.
Consumer advocates say the federal government should adopt a rule that requires lenders to determine, in advance, a borrower’s ability to pay the loan and afford necessities such as food. Speight said these loans’ potentially destructive consequences show government needs to act.
“One of our key findings was, this is just further evidence of the need for stronger state and federal protections for consumers regarding these products,” he added.
In its current form, payday lenders could be exempt for their first six loans from the rule requiring lenders to determine if a borrower can afford necessities. Washington state only allows eight payday loans per year. The public comment period on the new rule ends on October 7th.
The complaint form is here.
Eric Tegethoff is a journalist covering the Northwest. Eric has worked as a reporter for KBOO, XRAY FM, and Oregon Public Broadcasting in Portland, Oregon, as well as other print and digital news media. In 2012, Eric traveled to North Dakota to write about the Bakken region oil boom. He's also worked at a movie theater, as a campaign canvasser and quality assurance at a milk packaging factory. Eric is originally from Orlando, Florida. He graduated from the University of Florida in 2010.