Can one emergency expense ruin your life? It can if you get caught up in the traps set millions of times each year for ordinary working people by payday loan sharks.
Stephany Morales was a single mom in college, studying to be a nurse, when her toddler got a chest infection. Her insurance wouldn't cover the $400 cost of nebulizer treatments her pediatrician prescribed, so she turned to a payday loan, thinking this would be a one-time expense.
But between food, rent and tuition, Stephany didn't have enough to pay the loan back when it came due two weeks later. She had to re-borrow, and before long she was drowning in debt. Stephany had to drop out of school just two quarters short of getting her degree and license to practice as a nurse, lost her car and almost lost her apartment.
Now, nearly four years later, Stephany's already paid over $13,000. She had to move in with family to make ends meet, is still taking the bus and struggles even to get a cell phone because her credit is shot.
Far From Alone
Stephany is far from alone in having her dreams crushed by payday loans. Every year, this predatory industry traps 12 million hardworking Americans in a life-destroying cycle of debt.
A typical payday loan takes up to one-third of a borrower's paycheck, with interest rates that average 391 percent APR, leaving folks little choice but to borrow again. In fact, more than ninety four percent of payday loan borrowers borrow again within a month. Half borrow again the same day.
Stephany's story isn't an unfortunate accident: it's a business model. Payday lenders make loans without any information about whether a borrower can pay them back after these triple-digit interest rates kick in.
Predatory lenders don't have to, because the law gives them direct access to borrowers' bank accounts. Every payday, before borrowers can feed their kids or pay rent, the payday loan sharks snatch their cut straight from their bank accounts.
The CFPB's Common Sense
After decades of grassroots organizing, payday borrowers are finally getting the protections they deserve from our federal government. The Consumer Financial Protection Bureau (CFPB) has just released the first national protections to curb some of the worst abuses of payday loan sharks.
These protections will stop some of the most egregious practices payday lenders use to keep families in debt such as endlessly flipping loans as interest piles up. At its core, the CFPB's new rules for payday lending follow a simple, common-sense idea: every lender should check that a borrower can afford to repay their loan before lending them money.
Sounds pretty sensible, right? Yet, even before the CFPB's payday lending rule was released, the lending industry and its friends in Congress were plotting how to block even its most basic protections.
Loan Sharks Bite Back
Texas Representative Jeb Hensarling, who has received more than $5.5 million in campaign contributions from the payday predators, announced this summer that one of his top priorities would be to block any effort to rein in payday loan sharks.
Payday loan sharks have dumped more than $13 million into the pockets of politicians and lobbyists to sabotage common-sense safeguards for consumers. Now, payday lenders are preparing an all out assault on the new payday protections and on the CFPB, the only federal agency designed just to protect ordinary Americans from financial tricksters.
Predatory lenders are attacking protections for borrowers from every angle: trying to block these new rules, to promoting bills like the CHOICE Act that further undermine the CFPB, to pressuring the Office of the Comptroller of the Currency (OCC) to undermine its payday protections, and inserting payday poison pills into budget legislation.
Make Our Voices Heard
Stephany and the millions like her who get trapped in loans loans may not have deep pockets to buy votes in Congress. But we can still make our voices heard. After all, the American people aren't fooled by the payday loan sharks' lies.
More than 450,000 people spoke out for strong protections while the CFPB was taking comments on the rule. In November 2016, a bill to cap interest rates on payday, car title and installment loans at 36 percent was on the ballot in Oklahoma. Payday lenders dumped millions in confusing ads into the state, but the ballot measure still passed -- with seventy five percent of the vote!
The payday loan sharks' deep pockets didn't save them from common sense in Oklahoma, and we have no intention of letting them win this time either. Payday borrowers, faith leaders and grassroots organizations like People's Action are standing up all over the country and demanding that our elected officials support basic protections against financial exploitation.
The Choice Is Clear
For Congress, the choice is clear: lawmakers can side with an industry built on trickery and exploitation, or they side with the American people. There is no middle ground on this issue, and we certainly won't forget where lawmakers stand when they run for re-election.
The CFPB's new rules represent one small step forward in a decades-long fight against the big bankers and payday loan sharks who want to keep our communities shackled by debt. However, they are far from the end of the road.
We are still waiting for protections on longer-term high cost loans like some car title and installment loans and we need to keep strengthening state protections. The financial industry lobbyists managed to ban the CFPB from setting a rate cap directly, but Senator Durbin has introduced legislation that caps interest rates at 36 percent.
People's Action and allies in the Stop the Debt Trap Coalition have been working to end abusive lending for decades, and we have no intention of stopping now.
Abusive lenders have a history of slithering through loopholes, but we won't stop until common sense protections win out over the industry's lies. One loan shouldn't plunge you into years of debt or knock your life off track. Let's make sure Congress stands with us, not the financial predators who feed off our communities every day of the year.