How the CFPB Protects Consumers Using Payday Loans
Written by: Kristy Welsh
Last Updated: August 30, 2017
Though they're advertised as a way to help consumers make ends meet until their next payday, cash advances from payday lenders almost always do their borrowers more harm than good. Fortunately, the Consumer Financial Protection Bureau (CFPB) exists to supervise financial products and services, payday loans among them.
CFPB Regulates the Payday Loan Industry
For 20 years, payday lenders operated with virtually no oversight. That is until January 2012 when the CFPB assumed formal supervision of the payday loan industry.
In this role, the CFPB is tasked with ensuring that payday lenders are in line with rules and regulations. If and when they are found in violation, it is the CFPB's job to step in.
For instance, the CFPB has taken enforcement action against two of the largest payday lenders in the country:
- In November 2013, the CFPB ordered Cash America to refund $14 million to borrowers for the alleged robo-signing of court documents in debt collection lawsuits, as well as violations of the Military Lending Act in loans to servicemembers.
- In July 2014, the CFPB ordered ACE Cash Express to refund $5 million to borrowers for the alleged violation of debt collection practices, including excessive phone calls, sharing details of loans with employers and relatives, and threatening to charge collection fees and report to the credit bureaus, both of which company policy states they cannot do.
Both Cash America and ACE Cash Express were also fined $5 million each, which goes into the CFPB Civil Penalty Fund.
CFPB Conducts Studies of the Payday Loan Industry
It's no secret payday loans are an expensive last resort for consumers who can least afford them. But nothing can shock sense into consumers and lawmakers like hard numbers that speak to just how dangerous these debts can be.
For instance, the CFPB's March 2014 study found that:
- Over 80 percent of payday loans are rolled over or followed by another loan within 14 days (i.e., renewed).
- Half of all loans are in a sequence at least 10 loans long.
- For more than 80 percent of the loan sequences that last for more than one loan, the last loan is the same size as or larger than the first loan in the sequence.
- Monthly borrowers are disproportionately likely to stay in debt for 11 months or longer.
- Most borrowing involves multiple renewals following an initial loan, rather than multiple distinct borrowing episodes separated by more than 14 days.
This data can be used to educate consumers, as well as to inform the writing of new rules and regulations that can better protect consumers from this too often devastating cycle of debt.
Educates Consumers on Payday Loans
The CFPB maintains an extensive database of information on all sorts of consumer financial products and services in its Ask CFPB section.
On the subject of payday loans, you'll find answers to questions like:
- "Is a payday lender required to offer me the lowest rate available?"
- "I heard that taking out a payday loan can help rebuild my credit or improve my credit score. Is this true?"
Answer: Payday loans generally are not reported to the three major national credit agencies.
- "My payday lender I could be arrested if I failed to pay back my debt. Is that true?"
- "Can a payday lender garnish my wages?"
Answer: Your wages usually can be garnished only as the result of a court order.
- "A payday lender told me it doesn't make loans to consumers in my state. Aren't payday loans available everywhere?"
Answer: No. Some states have laws against them.
If you have a question, go to Consumer Finance Protect Bureau, click on "Get Assistance" then select "Ask CFPB" and search "payday loans."
CFPB Accepts Payday Loan Complaints
Have you had trouble with a payday loan? Unexpected fees or interest? Unauthorized or incorrect charges to your bank account? Payments not being credited to your loan? Problems contacting the lender? Receiving a loan you did not apply for? Not receiving money after you applied for it?
When you submit a complaint to the CFPB:
- Your complaint and supporting documentation is forwarded to the company for their review.
- The company has 15 days to respond to the CFPB and to you.
- The CFPB provides you with email updates on your complaint status.
Note, the CFPB also shares complaints with state and federal law enforcement agencies, and sends a complaint report to Congress twice a year. Your complaint may also be posted to the Consumer Complaint Database (minus any personally-identifying information).
Whatever the issue relative to your payday loan, the CFPB wants to hear about it.