Advocates Call on Congress to Take a Bite Out of Payday Predators
Plus, Loans from Microsoft Edge?
Consumers advocates today cheered the introduction of bipartisan federal legislation to set a 36% rate cap on payday and car title loans. The move comes even as some states have already taken positive steps to rein-in payday predators.
The bipartisan House bill was introduced by Rep. Jesús “Chuy” Garcia (D-IL) and Rep. Glenn Grothman (R-WI) and is a companion to the Senate bill (S. 2508) that was introduced in August by Sens. Jack Reed (D-RI), Jeff Merkley (D-OR), Banking Committee Chairman Sherrod Brown (D-OH) and Sen. Chris Van Hollen (D-MD).
“For too long, payday and car-title lenders have been allowed to exploit the most economically vulnerable members of our communities,” said Candace Archer, payday and consumer campaigns manager for Americans for Financial Reform. “Congress is right to take the initiative to address this problem, especially as many families are struggling to recover from the economic devastation caused by the pandemic. This bill will establish nationwide safeguards to protect consumers from dangerous debt traps.”
According to the Consumer Financial Protection Bureau (CFPB) about 80 percent of borrowers have to take out another payday loan to repay the original loan, initiating a spiraling cycle often referred to as the “debt trap.” Every time a person takes out another loan, the overall amount of debt increases as interest and fees pile on. Collectively, the debt trap is draining $8 billion every year from borrowers. By prohibiting loans with an APR above 36 percent, this bill would fight the debt trap.
Photo by Anton Chernyavskiy on Unsplash
Payday Lenders Can Leave a Debt Trap Lump of Coal
According to a recent survey conducted by DebtHammer, a majority of Americans plan to go into debt to finance Holiday shopping and gift giving. Specifically:
Though more than 78% say they have some savings set aside for holiday spending, 58% said they expect to take out a payday loan or other short-term loan to pay for their holiday celebrations, and 66% expect to use a “buy now, pay later” plan like Afterpay, Klarna or Affirm to help spread out their expenses.
An Unlikely Lender?
Should you get a loan straight from your browser? As in: Microsoft Edge already shows you coupons and applies them, why not get a buy now, pay later loan, too?
Microsoft is always trying new stuff with its Edge browser, and its latest move is rather interesting. Rather than going through a retailer, Edge will offer a buy now, pay later (BNPL) option on the browser level.
Lauren Saunders of the National Consumer Law Center (NCLC) says of these products:
“Buy-now-pay-later products, if affordable and truly free to the consumer, may help consumers manage larger purchases without the long-term debt and high costs of credit cards. But some BNPL products may have deceptive and abusive profit models built on the expectation of late fees from struggling consumers.