One of the biggest problems facing the payday lending industry is the introduction of new laws that will put a major damper on the industry by way of limiting access to short term loans across the country. Some of the folks behind these new proposals believe that restricting access will solve the debt problems that many lower income borrowers face. The fact of the matter is that the proposed restrictions will not solve this problem.extra

Limiting a group’s access to lines of credit does not stop that group of people from taking on debt. The CFPB seems to think that forcing lenders to work harder in order to approve loans, and making borrowers responsible for providing the same amount of documentation that they would have to in order to get a mortgage is going to help lower income borrowers from getting into revolving debt. There are even new restrictions being proposed that would limit the fees that lenders charge; as if that would stop people from borrowing money. These new provisions may help some people, but they won’t do much for the nearly 12 million Americans who take out upwards of $46 billion in short term loans to take care of emergency expenses.

Instead of proposing harsh penalties on all lenders, the folks at the CFPB should be concentrating on sorting the bad apples out of the bunch in order to make a lasting, positive impact. It makes no sense to get rid of an industry – an industry that offers much needed financial services to lower income households – when it is possible to foot out the lenders who are breaking the rules in order to make more of a profit each year. This is common sense policing that should take place in any industry, but the CFPB seems to be on more of a mission to put restrictions in place that will snuff out the short term lending industry completely.

If the Consumer Financial Protection Bureau puts rules into place that will effectively put the payday lenders out of business, while leaving low income consumers with no lending alternatives, what are those consumers supposed to do?Some folks answer this question by saying that these folks need to save more money, ask family members for personal loans or that low income borrowers should go to the bank like everyone else. These suggestions are not rooted in reality, and the majority of low income households simply do not have these options available to them. It’s hard to save money when you barely make enough to get by. Family members often don’t have extra money to lend to anyone. And as far as going to the bank – the mainstream banks often don’t have branches in lower income areas and are very reluctant to make loans to people who don’t meet their stringent loan requirements.

Looking at the options that some people believe will replace the need for short term, small dollar loans is a bit depressing. The fact is that CFPB members are out of touch with what it means to live from one paycheck to another, and their new proposed restrictions will likely wind up doing more damage than good over the long haul. As if low income households were not already marginalized enough, now it seems that the very agency that was created to protect people from financial misdoings is going to be the agency that winds up cutting off any reasonable access to lines of credit in the foreseeable future. Simply put – there has to be a better way, but the CFPB doesn’t seem willing to find out.

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