Payday Lending

5

PaydayLending

Paydayloans refer to small, unsecured, and short-term loans. Since theseloans are relatively small, the lenders expect borrowers to pay theloan back in full quickly normally in a few weeks. Additionally,their lending is quite skimpy only requiring a borrower to contain anincome and a bank account. The borrowers can provide the lenders withpost-dates checks or approve an electronic funds withdrawal.

1.What you would do to help get this bill passed if you wererepresenting consumer groups?

IfI were representing the consumer groups, I would help to pass thebill but with some restricting clauses on the borrowing process. Byrepresenting the consumer groups, I would propose that the bill bepassed, but insert a clause that forbids lenders from trying tocollect payment from the bank accounts of consumers. Thus, I wouldsupport legislations that support strong consumer protection. I wouldoffer proposals that allow the lenders to ensure that the consumersrepay the loans borrowed but without harming them as it is happeningcurrently (CFPB 1).

Presently,consumers have a short-term period of between two weeks to 45 days torepay borrowed loans. However, as their representative I wouldpropose that since most consumers rely on their paychecks, tosurvive, such short timeframes might make it improbable to repay theborrowed loans in time. Therefore, I would suggest a solution toavoid rolled over loans, which later becomes unaffordable long-termdebt traps. I would propose that the lenders should either thwartdebt traps at the beginning of every loan or defend against debttraps throughout the lending procedure, before passing the bill (CFPB1).

Anotherproposition is that the lenders must eliminate the debt traps byoffering affordable repayment preferences. Additionally, I would alsosuggest that the lenders should restrict the numbers of loans eachborrower can access, take in a row or within specified periods suchas a year (CFPB 1). Thus, I would ensure that these aspects areconsidered before passing the bill.

2.What you would do to change or defeat this bill if you wererepresenting payday and title lenders?

IfI were representing the lenders, I would defeat the proposed bill toend the payday lending business by highlighting the advantages of theindustry. For instance, I would explain that the payday lendingbusiness is highly profitable. The payday lending industry hascontains higher profit margins when compared to the otherconventional lending agencies such as banks and credit unions. Theindustry is also a necessary venture assisting consumers in times ofneed (Barnett 1).

Additionally,I would argue to defeat the bill because the lending charges are notpredatory as critics claim. On the contrary, the charges are in linewith costs. When compared with the size of the advance fees thatborrowers take, the operating costs of these companies are notoverestimated (Barnett 1). I would argue that the industry chargesthese fees after considering the high rates of default losses thelenders encounter, which might not necessarily result inextraordinary profits. Therefore, to defeat the proposed bill I wouldpropose that the lenders would adjust the repayment period. Thiswould allow the borrowers to repay their loans in time. For instance,instead of ending the business, it would be better for lenders toadjust the harmful practices in the industry. This would discourageoffering borrowers’ loans that accumulate into larger debts.Conversely, I would propose that lenders should verify the financialobligations and incomes of the consumers, as well as their borrowinghistory, to determine their capacity to cover the loans.

Moreover,I would propose that the lenders should always provide notificationto the borrower before accessing their deposit accounts. Thisinvolves notifying the consumer while submitting transactions totheir accounts in credit unions, banks, or prepaid accounts, whichwould help the consumers to manage their finances better.

3.Finally, how you would respond to these groups, their argumentsand activities if you were a state legislator.

Asa state legislature, I would take into account the arguments of bothsides. First, I will inform the consumer groups that ending theindustry would not solve the crisis. This is because some paydaylenders have invested many dollars in the industry. Closing down theindustry would result in many investors in the industry losing theirinvestment. Secondly, I would respond to the lenders and inform themthat many borrowers have complained of the enormous loan repayments.I would inform them, that their industry has flaws, which they areusing to exploit the borrowers. Finally, is suggesting to theopposing groups to seek measures that work for both of them. That isbecause the short-term loans business is a beneficial venture to bothsides. I think it is important for both parties to highlight thechallenges they encounter in the industry. After, gathering the viewsof both sides, is drafting changes to the bill that takes intoconsideration their concerns. Therefore, I would propose requirementsfor the lenders and consumer groups, which they should adopt tosupport debt trap prevention and protection. Furthermore, I wouldpropose policies, which will restrict loan sizes and the paymentinstallments that the payday lenders offer (Hershaw 1).

Workscited

Barnett,Marissa. Lawmakersface long odds in effort to crack down on predatory lending.The Dallas Morning News. Web. (April 29, 2015). Available at:

&lthttp://trailblazersblog.dallasnews.com/2015/04/lawmakers-face-long-odds-in-effort-to-crackdown-on-predatory-lending.html/&gt

ConsumerFinancial Protection Bureau (CFPB). CFPBConsiders Proposal to End Payday Debt Traps.Web. (March 26, 2015). Available at:

&lthttp://www.consumerfinance.gov/newsroom/cfpb-considers-proposal-to-end-payday-debt-traps/&gt

Hershaw,Eva. LawmakersLend an Ear to Concerns Over Payday Loans. TheTexas Tribune. Web. (April 29, 2015). Available at:

&lthttp://www.texastribune.org/2015/04/29/lawmakers-lend-ear-concerns-about-payday-loans/&gt