Payday loans can lead to what one borrower describes to the New York Times as a "black hole," with one high-interest short-term loan leading to another as borrowers struggle to repay the money. While state laws have targeted the problem, federal agencies have stayed out of the matter—until now. The federal Consumer Financial Protection Bureau is readying a draft of new rules addressing short-term lenders, which the Times calls "chameleons" for their agility in adapting so they can skirt regulations. Insiders tell the paper that the rules will take on loans supported by car ownership as well as installment loans running longer than two weeks, some of which have interest rates higher than 36%.
The regulations would call for lenders to ensure borrowers are capable of repaying their loans within two weeks. Among the federal bureau's findings in the matter: Within a year, individual borrowers took out a median of 10 loans, and some 80% of them "were rolled over or renewed within two weeks," the Times reports. "Much of the business model is based on repeat borrowers," says an advocate for responsible lending. But the regulation process is complicated by the fact that millions need such loans. "What payday lending reflects is the fact that the majority of Americans live paycheck to paycheck," says a lawyer. "Just punishing payday lenders is not going to prevent Americans from needing short-term products." (John Oliver and Sarah Silverman tackled the subject last summer.)
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