The practice is just as horrific as it suggests: “predatory lending.” Payday lenders are designed to take advantage of those who can least afford to be casual with finances.
Anyone with a job and a bank account can get a short-term loan from a payday lender. The lenders operate under different regulations than a bank or credit union, which makes money available to people with bad credit. But those loans come at an exorbitant price.
In Illinois, the maximum loan amount is the lesser of $1,000 or 25 percent of the borrower's gross monthly income. Fees are $15.50 per $100. The annual percentage rate for a 14-day $100 loan is 403 percent.
By comparison, the highest current credit card rate available now according to wallethub.com is 36 percent on the new First Premier Bank Credit Card. The card is unsecured and for bad credit.
The Consumer Financial Protection Bureau attempted to formulate rules that would protect borrowers. The group's new 2017 rules limited the abilities of payday lenders, putting limits on the number of loans available to people.
According to the bureau, those who got loans seven or more times in a year accounted for 90 percent of the fees the industry collected. Those whose loans reached double figures were responsible for 75 percent of the fees.
The plan also revised rules for loans of 45 days or fewer, making lenders more responsible for determining how easily the loan could be repaid. That was designed to limit an industry practice of refinancing loans and ultimately ending up with the borrower paying more in fees than the amount of their original loan.
President Trump had been attacking the rules, and earlier this month, new bureau leader Kathy Kraninger presented a proposal to lift the requirement that payday lenders check a borrower’s ability to repay and allow them to make as many loans to individual borrowers as state law permits.
The proposed changes, if approved, are likely to be challenged in federal court. This has the potential to be a topic of discussion during the 2020 political campaigns.