Consumer Protection Agency Might Not Regulate Payday Loans

Companies that pass out payday loans got a bit of good news in early March. Whether the news is good for consumers is a matter for debate. The Los Angeles Times in its March 10 edition reported that payday lenders would be mostly exempt from any oversight from a new consumer protection agency that may spring out of legislation being debated in the U.S. Senate. Advocates for the payday loans industry hailed this as good news, saying that it should be up to individual states to regulate the activities of payday lenders. Critics counter by saying that the states have done a terrible job so far of reining in the high interest rates and fees that payday lenders charge.

Bureau of Financial Protection The payday loan debate is part of the battle in the U.S. Senate to create the new Bureau of Financial Protection that would protect the interests of U.S. consumers. Under a proposal from Senate Banking Committee Chairman Christopher Dodd and Sen. Bob Corker from Tennessee, any agency formed would have little oversight responsibility over payday lenders. The legislators say that is a duty best left to individual states. The Los Angeles Times, though, quoted consumer advocates who pointed to the fact that many states have allowed payday lenders to charge their borrowers interest rates that come out to as much as 460 percent a year. These advocates referred to payday loans as debt traps for struggling consumers.

State Battles There are signs, though, that a growing number of states might be up to the task of regulating payday lenders. Many of them have either passed or are debating legislation that would regulate the business practices of these lenders. Some states have put a limit on the size of the loans that payday lenders can originate. Others have enacted limits on the number of payday loans that consumers can take out in a given period of time. Perhaps a federal agency’s oversight isn’t needed.

Consumer Responsibility There’s also the matter of consumer responsibility. Taking out payday loans is a bit like smoking: Everyone knows it’s bad for you. Some consumers admittedly have little choice. They are suffering through financial crises and need payday loans to keep the lights on. But other consumers who take out these loans for long vacations or other unnecessary expenses have no one to blame but themselves when they shell out 400-percent interest. We can all agree that the federal government already has a lot to deal with these days. Maybe regulating payday lenders is a job best left to the states.

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