Debt Trap Lending
From US News:
The standard payday loan is marketed as a one-time quick fix for those facing a cash crunch. But the typical borrower ends up in a very long series of loans – 10 on average – incurring extra fees each time out. Car-title and payday installment lenders play variations on the same theme: A high proportion of their customers remain on the hook for months or even years, making payment after payment without significantly diminishing the principal. And these are the borrowers who make the loans profitable: We are talking about an industry, in other words, whose business model is to trap people in a cycle of debt.
But the problem is not a hopeless one. The Consumer Financial Protection Bureau, the agency conceived by Sen. Elizabeth Warren and created by the Dodd-Frank reforms of 2010, has already drafted and begun to implement rules to guard against a resurgence of deceptive and unsustainable mortgage lending. Now it is working on rules to rein in the abusive practices of payday, car-title and payday installment lending.
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