Consumer Financial Protection Bureau Lifts Restrictions On Payday Loans

Feb 27, 2019
Originally published on February 28, 2019 9:29 am
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MARY LOUISE KELLY, HOST:

Earlier this month, the Consumer Financial Protection Bureau announced it will roll back Obama-era restrictions on payday loans. Stacey Vanek Smith and Cardiff Garcia from Planet Money's The Indicator tell us what the regulations would have done for consumers and what it's like to be in a debt cycle with payday lenders.

CARDIFF GARCIA, BYLINE: Amy Marineau took out her first payday loan nearly 20 years ago. Amy was living in Detroit with her husband and three little kids. She says the bills had started to feel crushing.

STACEY VANEK SMITH, BYLINE: Amy went into the payday lending store to just see if she could get a loan, just a little one.

AMY MARINEAU: I felt like, yes, I can pay this bill.

VANEK SMITH: Amy says it felt like she could breathe again, at least for a couple of weeks. That is when she needed to pay the payday lender back with interest, of course.

MARINEAU: You have to pay 676.45. That's a lot of money.

VANEK SMITH: You still remember the amount.

MARINEAU: That 676.45 - it just now popped in my head.

GARCIA: That extra 76.45 was just the interest on the loan for two weeks. Play that out over a year, and that's an annual interest rate of more than 300 percent.

VANEK SMITH: But when she went back into the payday loan store a couple weeks later, it felt like she couldn't pay it back quite yet, so she took out another payday loan to pay off the 676.45.

MARINEAU: Because something else went wrong. It was always something - something coming up, which is life.

VANEK SMITH: Amy and her husband started using payday loans to pay off credit cards and credit cards to pay off payday loans. And the amount they owed kept climbing and climbing.

MARINEAU: You feel defeated. You're like, when is this ever going to end? Am I ever going to be financially stable? Am I ever going to get there?

GARCIA: And this is, of course, why the CFPB, the Consumer Financial Protection Bureau, had planned to put payday loan regulations in place later this year. Those new rules were announced under the Obama administration and would've restricted who payday lenders could lend to. Namely, they would only be able to lend to people who could prove a high likelihood that they could immediately pay the loan back.

VANEK SMITH: How much of a difference would those regulations have made in the industry?

RONALD MANN: I think it would've made a lot of difference.

VANEK SMITH: Ronald Mann is an economist and a professor at Columbia Law School. He's spent more than a decade studying payday loans. And Ronald says the regulations would've basically ended the payday loan industry because it would've eliminated around 75 to 80 percent of payday loans' customer base.

MANN: I mean, these are products that are - there's a fair chance people aren't going to be able to pay them back.

VANEK SMITH: Ronald says that is exactly why about 20 states have either banned payday loans entirely or really restricted them.

GARCIA: On the other hand, more than 30 states don't really have restrictions at all on payday lending. And in those states, payday lending has gotten huge, or, you might say, supersized.

MANN: The number of payday loan stores is about the same as the number of McDonald's.

VANEK SMITH: Actually, there are more payday loan stores than McDonald's or Starbucks. There are nearly 18,000 payday loan stores in this country right now.

MANN: So I think what you really have to see is to step back and say or ask, why are there so many people in our economy that are struggling so hard?

VANEK SMITH: People like Amy Marineau.

MARINEAU: The turning point for me was having to, at 43, live with my mother again and not being able to take care of our family the way that we wanted to.

GARCIA: Amy says that at that moment, she decided no more payday loans ever. She went through bankruptcy. And since then, she says, she has been incredibly disciplined about her budget. She and her family have their own place again, and she's currently working two jobs. She says they all live on a really strict budget - just the necessities.

VANEK SMITH: Stacey Vanek Smith.

GARCIA: Cardiff Garcia, NPR News. Transcript provided by NPR, Copyright NPR.