It was on October 5, 2017 that the Consumer Financial Protection Bureau (CFPB) first announced they had finalized a rule aimed at curbing predatory lending practices by payday lenders. It’s been nearly three decades since predatory payday lenders saw their influence grow throughout the United States. In that time, unsuspecting and financially vulnerable borrowers have found themselves stuck with exorbitant APR fees averaging nearly 400 percent nationally, all while being thrown into an almost-inescapable debt cycle.
The original 2017 CFPB rule dictated that payday lenders must first establish whether the borrower can afford to pay back the proposed loan amount. “The CFPB’s new rule puts a stop to the payday debt traps that have plagued communities across the country,” said then-CFPB director Richard Cordray in the wake of the ruling. “Too often, borrowers who need quick cash end up trapped in loans they can’t afford. The rule’s common sense ability-to-repay protections prevent lenders from succeeding by setting up borrowers to fail.”
That portion of the ruling ended two weeks ago, July 7, 2020, under current director Kathleen Kraninger. This reversal essentially supports the $30 billion high-interest, short-term lending industry.
This is a major setback for consumer protections in the United States. Borrowers who use payday lending services spend $7 billion a year in fees, according to The New York Times. Fortunately, credit unions can do something to help. Credit unions’ common identification and history with consumer loans goes way back; they were founded in Germany in 1849 to save poor urban workers from resorting to loan sharks for financial help. In America during the Great Depression, thousands of financial institutions were forced out of business, forcing a 60 percent drop in lending. Searching for an alternative, vulnerable Americans collected what was left of their savings and formed lending cooperatives: credit unions.
Why Credit Unions?
Credit unions should be the public’s first stop for borrowing money or planning for improved financial health, especially if the consumer has a fair-to-poor credit score (below 690). Their benefits include:
- Significantly lower interest rates
- More flexible terms
- Loan representatives often considering factors or influences beyond the borrowers’ credit score such as level of income or, again, their ability to repay
Struggling consumers across the nation are in need of financial help now more than ever. Credit unions can be that beacon of consistency, patience, and mentorship. Our small-dollar lending platform is here to help, too. Right now, we are offering a COVID-19 Financial Relief Program through the end of 2020 for U.S. and Canadian-based credit unions looking for a responsible, short-term credit solution to offer your members in need of instant liquidity during this COVID-19 pandemic. Our solution will automate the lending approval process for unsecured loans between $500-$10,000. Contact us today to learn more.