By: Javi Calderon
Credibility: a crucial quality that payday loan lenders certainly don’t embody. Vilified by lawmakers and state governments, the public perception of cash advance stores is that of loan sharks, scam artists and thieves. State by state, legislatures have been passing measures to curtail interest rates and restrict loan maximums – reigning in the liberties of what is perceived and portrayed as a greedy and out-of-control financial product.
In comes the United States Consumer Financial Protection Bureau, created by President Barrack Obama to rebuild consumer faith in the U.S. banking system in the wake of the big bank meltdown and financial crisis. The goals: regulation of financial products, transparency, disclosure and fairness – to build the confidence of the American people in their financial institutions.
Originally, the payday loan industry strongly opposed the creation of an agency that would police and over-see non-traditional financial products, fearing more strict regulations at the federal level.
Industry leaders need to accept the fact that the Bureau has been signed into law and is going to be active. They have two options: continue to be stubborn and fight it (and look bad for it) or embrace the fact and put it to work for them.
While the Consumer Financial Protection Bureau might bring nation-wide limits and regulations, they will be fair and (unlike decisions made by misled state governments) well informed. Elizabeth Warren – a Harvard professor, the Bureau’s architect and probable first director – is a premiere expert in consumer debt and financial products who understands the need for short-term credit options for middle and low-income families. Warren has voiced that she sees the merit of financial products like payday loans and would not be interested in banning them.
Though federal regulations might initially restrict their income, if payday lenders accept the measures and play nice, the Bureau will lend them something far more valuable in the long run: credibility. By accepting regulations the Bureau sees as fair, payday lenders will be able to rid themselves of their overwhelmingly negative pubic image. The Bureau’s endorsement will foster consumer trust, leading to new customers and repeat customers.
Furthermore, the industry would no longer be subject to state decisions that have forced many lenders to vacate certain states when legislation goes into effect. Many states have been adopting a 36% APR limit on payday loans, almost purposely forcing lenders out of business. This keeps payday lenders in a migratory existence. By embracing the Bureau’s decisions the industry would finally be stable and accepted by mainstream America.
Not only would the Bureau look to regulate and standardize payday loans, they would seek uniform regulation across the spectrum of short-term credit options, including car title loans, online payday lending, check cashing and similar options offered by banks and credit unions.
So payday lenders, listen! Accept the Consumer Financial Protection Bureau (since you really have no choice), be open, transparent and helpful, and eventually reap the benefits of being a trusted and legitimate industry.
