Jul 07 '16
While Payday Regulations are Examined, Financial Struggles Keep On
The Consumer Financial Protection Bureau recently released proposed rules to help people get out of payday, vehicle title, and high-cost installment loan traps. Many financial institutions believe if the rules were implemented, it would make it hard to issue alternatives to high-cost loans, while consumer protection groups believe that the proposed rules do not go far enough.
One thing is clear: there is a tremendous need for short term, fairly priced lending products that provide consumers a way to achieve financial health.
Recently, the topic of financial services for the un- and underbanked, those living in poverty or otherwise marginalized groups has been under the spotlight.
Payday, vehicle title, and certain high-cost installment loans are often the only option for many Americans and the Consumer Financial Protection Bureau (CFPB) recently released proposed rules aimed to help people get out of exploitative debt traps.
The debate takes the stage…
This debate is complex, dynamic and emotional. Especially given that credit unions exist solely to serve those who make up the organization--its members. And with the guiding philosophy of “people helping people,” credit unions may worry how they can continue to serve and help their members with a continual tightening of regulations.
Many financial institutions (including credit unions) believe that they are already serving consumers in a responsible manner and that the rules are burdensome and costly. If the rules were implemented, they argue, it would effectively make it infeasible to issue alternatives to high-cost payday type loans.
Alternatively, many stakeholders and consumer protection groups believe that the proposed rules do not go far enough and contain numerous loopholes, which may exacerbate the existing problem of predatory lending.
Stakeholders from both sides agree: there is a tremendous need for short term, fairly priced lending products that provide consumers a way to achieve financial health.
Numerous financial blogs and articles in the mainstream media today highlight the challenges and stressors everyday people face regularly when it comes to managing finances. This Lifehacker article points to all the reasons why “stuff costs more when you’re poor.” The article talks about bank fees and how it is expensive to keep your money in an account—noting that these fees are avoided easily enough, if you have the money…
“The point is: there are solutions, but in practice, those solutions don’t seem to work well when you’re flat-out poor. Studies show there are fewer financial service options for lower income individuals, so they rely on costly alternatives: payday loans and other debt traps. […] The reasonable mainstream services that are available to most of us just aren’t as accessible for low-income households, which means they pay a lot more for alternatives.”
Unfortunately, this challenge for the most financially vulnerable populations will not suddenly stop while parties continue to debate and analyze the CFPB proposed rules.
Viable solutions now…
It will be some time before any rule changes are fully implemented. At this time, we can only speculate what those final rules may be.
Right now, credit unions and other financial intuitions are in a position to enable un- and underbanked consumers seeking financial health.
Right now, there are viable solutions that offer consumers credit at much lower rates than predatory lending institutions that fully operate within existing rules and regulations and have the flexibility to adapt to changing rules.
Right now. (Am I being too subtle?)
Many credit unions are already blazing their own paths ahead, knowing exactly what their communities and members need and doing what they can to serve them while still maintaining the soundness of their shops.
All credit unions can and should act now to determine what they can do to serve their most financially vulnerable members and communities now and in the future
For our part, Filene is extremely proud of our current Incubator initiative, Reaching Minority Households, where we are actively recruiting credit unions to test programs designed to close the financial access gap.
The problem is complex, but credit unions and other financial institutions are essential pieces of an overall puzzle to address consumer financial health and end the cycle of poverty.
Another way your credit union can make an impact today is by starting a conversation with us, partnering with us, joining our efforts. If you want to learn more, have ideas or suggestions, have questions or want to get involved, please do not hesitate to contact me at 608.661.3747 or [email protected].