If you have been following developments in the financial world lately you have probably heard that the Consumer Financial Protection Bureau (CFPB) released its proposed new rules that would greatly change the way that payday lenders and other short term lending companies do business. The proposed rules bring some troubling issues to light with regards to the potential impact that they will have on short term lenders, the people who borrow money from these lenders and even some of the traditional products offered by mainstream banks/standard market lending products.
Unless you are a voracious reader, you probably won’t have the time or inclination to go through the entire proposed regulation outline that the CFPB has provided. The document is over 1,300 pages long and goes into great detail about how the Bureau intends to force stiffer rules on short term lending companies.
What Changes are Being Proposed?
Contrary to popular belief, the new regulations don’t just apply to payday lenders. The proposed changes will affect credit unions, banks and nonbank lending companies (both brick and mortar locations and online lending companies.” Essentially, any entity that makes what the regulation refers to as “covered loans.” A covered loan can include single payment auto title loans, installment loans, open lines of credit or payday loans. The CFPB actually divides covered loans into two different categories. Loans that have a term of 45 days or less are considered short-term loans, while loans with terms greater than 45 days and one in which the lender charges annual percentage rate fees of more than 36 percent and collects payments via leverage payment mechanisms or secures said loan by holding the borrower’s car title as collateral are considered long-term loans.
Picking and Choosing the Types of Loans for New Regulations
The CFPB has been accused in the past of attacking small lenders, while buddying up to the banks and credit card companies. And while some products that the more mainstream lenders offer may be subject to the new rules, there are plenty of different loan products that are exempt. These financial products include:
- Credit Cards
- Private and Federal Student Loans
- Non-Recourse Loans from Pawn Shops
- Overdraft Fees
It should outrage some of our readers to find out that overdraft fees are exempt from the new lending regulations. The big banks make billions of dollars off of overdraft fees, and some would say that these fees are even more outrageous than even the highest fees charged by any alternative lending company. It is easy for someone to overdraft their bank account by a measly $10 and get charged a $39 overdraft fee. You do the math on that one, but it amounts to a ridiculous charge for such a minor financial infraction. Of course, the banks take in a ton of money from these charges, so it is no wonder that the CFPB has decided to make this huge source of profits for the big banks exempt from their latest attempt at regulating the lending industry in this country.
Financial experts have been chiming in on the damage that the new rule may cause for all parties involved. The payday lending companies may have to do so much work in order to provide loans that they wind up unable to stay in business. Other, bigger lending institutions may find that some of their products are unable to remain viable within the marketplace. There is no question, however, that the people who routinely use payday loans for emergency cash are going to suffer the most. If payday lending locations close the doors, many of these financially strapped households will have nowhere to turn to when they run into emergency expenses that they are unable to pay for without the additional help of a small dollar loan. So, it really doesn’t look like the CFPB has anyone’s best interest at heart, except, maybe, the fulfillment of its own agenda.