The Consumer Financial Protection Bureau (CFPB) under President Trump is rolling back Obama-era regulation that made it difficult for employed Americans to get payday loans. The existing regulation does not only make it nearly impossible for working Americans to access better payday loan options, it also takes away about $20 billion from the economy.
But that is about to change.
It is true that obtaining loans against your next salary might not be the best for everyone. But it sure bails out millions of people who experience sudden financial emergencies. In fact, the Federal Reserve revealed that 40% of American adults cannot deal with $400 emergency expense since they do not have enough savings.
When people do not have savings, catering to utility bills, fixing a broken-down car, repairing a blown roof, and paying for hospitalizations among others become difficult. But with a payday loan, these emergencies can be dealt with until the next salary comes through.
The CFPB Distorted and Misrepresented Research Used For Their Decision
The Obama administration regulated small loans by saying that borrowers do not know what they are getting into – meaning that consumers do not understand the financial risks associated with high-interest, short-term loans. And then, the CFPB justified this by relying on a research conducted by Professor Ronald Mann of the Columbia Law School.
However, Mann’s study stated that most borrowers understand the risks associated with loans but still go ahead to obtain them, meaning they know how the loans impact their overall finances. In fact, Mann condemned CFPB for misrepresenting his work and summarizing to even make it unrecognizable again.
Analysts say there is nothing complicated at all in small loans taken against the next salary. The only conditions are that the borrower must be employed, possess a current/checking account, and have valid means of official identification. Payday loans do not require any collateral or have hidden fees or terms, and they can provide up to $500 with a 15% interest by the next payday. This means a worker who borrowed $300 can expect to pay $345 in two or three weeks.
Lawmakers Should Not Decide For the Masses That Take Payday Loans
Since the CFPB seems to have this twisted, the Trump administration must be commended for setting things straight. Businesses and individuals had been suffering under the former regulation imposed by the former administration. The new reform will ensure that consumers access competitive credit markets – that is, more and better loan options. This is already one of the cardinal guidelines of the CFPB.
The move by the present administration to reverse the Obama-era loan regulation is a win-win for consumers and businesses alike, considering that Washington lawmakers do not take payday loans and not so qualified to make related decisions on behalf of the masses taking the short-loans.
