The Consumer Financial Protection Bureau (CFPB) has created new regulations for the payday lending industry. The new rule would limit lenders’ ability to make loans to people who are unable to repay when the loan comes due. The Governor of Alabama has begun efforts to form a task force in his state that will review the lenders doing business there.
As it stands now, people’s opinions on the CFPB’s proposed regulation is split. Those who are critical of the regulations, say that the rule will force legitimate lending companies out of business. Those who back up the new rule believe that it will help to prevent consumers from getting stuck in longer term “cycles of debt.”
Before you take a side on this debate, it is important to think about a question that needs answering: In the United States, if a product or service is believed to be harmful to some people does that mean that rules should be put in place that would essentially wipe out the industry that produces those products or services?
The fact of the matter is that a lot of borrowers get real world benefits from payday loans. However, there are always going to be people that find it difficult to repay their loans on time. Some of these folks will roll their loans over and will wind up having to pay fees that can become a bit costly over time. But this is not just true of payday loans. There are a lot of consumers who are overwhelmed with the interest and fees associated with excessive credit card usage. Student loans are also causing financial hardships for some. Heck, every year tens of thousands of people die from auto accidents, with error on the driver being a major cause. There are also people who wind up in debt because of gambling too much. You get the point – there are a lot of legitimate industries that offer products or services that could potentially cause problems for consumers. But is it right to regulate those industries to the point where the businesses in that industry are unable to do what they do best?
Most of us would probably argue that in the light of these examples, the new payday lending regulations are out of line. Of course, it is possible for some people to disagree, even after seeing the examples provided above. These folks may want to crunch some numbers in order to see how many people get harmed because of their inability to promptly repay their loans, and even some of the benefits that borrowers get from short term lending companies. Regardless of which side you take, we all have to agree that forcing prohibition via staunch regulations is probably not the best path to take.
A recent study found that nearly 80 percent of payday lending customers reported being very satisfied with their borrowing experience. These are folks who occasionally take out payday loans to pay for unexpected expenses; things that they did not have enough money saved up to cover. These respondents also said that if payday loans were not available they would likely have to sell possessions, use credit cards or even put off paying bills in order to get by during lean financial times.
The CFPB wants to lay down federal regulations that could potentially wipe out the payday lending industry. Bearing in mind that people should have the freedom to choose what is right for their financial big picture and that most consumers consider the option to get loans from payday lenders to be a good thing, is there really any way to justify this type of heavy handed government regulation in the first place?