Craig Lloyd Miles: Bureau needs to crack down on predatory loans
The Consumer Financial Protection Bureau, the Pew Charitable Trusts and several other organizations characterize the payday lending industry’s very business model as predatory in nature. Payday loan locations outnumber Starbucks and McDonald’s locations by more than 2-to-1, and are 2.4 times more concentrated in black and Latino communities.
Sunflower Community Action, in partnership with National People’s Action and many other organizations across the country, is fighting to raise awareness and push the CFPB to more strictly regulate not only payday lenders but all forms of predatory lending.
Most states have some form of usury law that sets the maximum cap on interest. Here in Kansas, it’s 15 percent. Payday loan companies get around these usury statutes by issuing short-term loans made against postdated checks.
While ostensibly complying with state usury laws, they are actually targeting low-income customers who, after taking out the initial loan, are likely to find themselves caught in a debt trap wherein they either have to roll over their current loan or take out another loan directly afterward in order to continue paying for their essential needs. The Center for Responsible Lending indicates more than 76 percent of the cash advance industry’s business is conducted with these repeat borrowers in a process known as “loan churn.”
With the average borrower being caught up in this vicious cycle for more than 200 days, what was supposed to be a one-time interest rate of 15 percent can easily become an annual percentage rate of almost 400 percent.
The car-title loan industry has deftly caught on to the profitability of the payday lenders and now offers a similar product, except, to make things worse, it gains the added benefit of being able to repossess your car. This is especially bad news for those of us in Kansas, where car-title loans exploit a loophole that allows them to be issued as open-ended lines of credit, which carry no interest-rate caps at all.
Payday and car-title lenders are making money hand over fist in Kansas. Perhaps it is no coincidence that U.S. Rep. Kevin Yoder, R-Overland Park, receives more campaign contributions from the payday loan lobby than any other member of Congress, according to Allied Progress.
The Consumer Financial Protection Bureau has an obligation to protect consumers from Yoder and the industry he protects.
Craig Lloyd Miles of Wichita is a member of Sunflower Community Action.
This story was originally published January 28, 2016 at 6:01 PM with the headline "Craig Lloyd Miles: Bureau needs to crack down on predatory loans."