Consumers depending on cash advance need to be safeguarded from the CFPB
By utilizing behavioral economics’ insights, organizations like, the Consumer Financial Protection Bureau and the Environment Protection Agency have been controlling the economy, especially cash advance business in such a manner that have never been seen before. These organizations do not deal with the shortcomings of the industry, but identify the shortcomings that are perceived on the part of the end-users. To put it simply, consumers are being controlled because they are thought to be less alert to detail, and therefore, they are considered to be making bad choices.
The reorganization of the regulatory tactics was prompted by the realization that consumers do not always make logical choices. As per some experts, people are inclined to save less than they actually should. They have a tendency of overestimating themselves about their capability of paying bills and underestimating the consequences of debt. This is what policymakers and a group of academics have put forward as an argument for their decision to regulate the short-term lending industry.
Payday lending businesses are one of their latest targets. These lenders typically provide a 2-week loan with interest, along with fees of the loan given. On an average, this amounts to $15 per $100 borrowed. When the borrower receives his next paycheck, the loan is usually repaid in full.
A 1,300-page statement has been released by the CFPB against the short-term lending industry. CFPB accuses this industry of taking advantage of the low cognitive ability of the average borrower. The response of the policy is yet to be properly outlined, but it is likely that measures for restricting the number of rollovers is going to be included.
The profile of an average payday loan customer in reality is someone with low income and who does not have access to the mainstream credit products like, home equity lines and credit cards. As compared to other credit users, their cognitive abilities seem to be quite consistent. However, there financial condition does differ.
An alternative to payday lending? Well, regular payday loan customers do not really have an alternative or the type of credit products that the regulators are going to enjoy. In fact, if they are deprived of short-term lending, these people might resort to other credit products that are less desirable, such as credit card cash advances, overdraft fees, selling off their possessions or pawnshops. The problem will not be fixed even if the regulators decide to remove one or more of these credit sources. It will only compel low-income Americans to opt for less sensible ways.
The CFPB was established to protect customers and empower them. But, the moves that they have made have only led to make consumers feel less empowered. Their rules are all directed towards limiting the options of credit available to the consumers.
The CFPB is a $600 million organization and it is practically independent. Since nobody is allowed to interfere in its day-to-day functioning, the bureau has continued to grossly misuse its powers. The pressures laid on payday lending businesses are only doing more harm to the low-income Americans than good. Government organizations going berserk are nothing new, but in this particular situation, the agency regulating the marketplaces is new.
A federal appeals court recently passed a ruling that the CFPB is unconstitutional. It is one thing for an agency to protecting and safeguarding the interests of the consumers from fraudsters, but it is quite another for an agency to claim that they exist due to the lack of intelligence of the people.
CFPB has never attempted to understand and appreciate how much the payday lending industry has helped the Americans meet their daily needs. This agency needs to be put under a lot of checks and balances so that it does not complete break down the cash advance industry. The lives of millions of Americans depend on it!
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