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CFPB White Paper on Payday Loans

The Consumer Financial Protection Bureau (CFPB) began looking at payday loans last year after holding a field hearing in Birmingham. The CFPB released a white paper that takes the field hearing testimony and consumer reaction into account. The bureau also asked consumers to send their experiences with payday loans, either good or bad. The responses varied from those that liked getting the loans to those that felt they were preyed upon.

The report found that "on one hand, some consumers provided favorable responses about the speed at which these loans are given, the availability of these loans for some consumers who may not qualify for other credit products, and consumers' ability to use these loans as a way to avoid overdrawing a deposit account or paying a bill late. On the other hand, consumers raised concerns such as the risk of being unable to repay the loan while still having enough money left over for the other expenses, the high cost of the loan and aggressive debt collection practices in the case of delinquency or default."

The white paper takes a two-fold approach to the problem, "First, we seek to provide information that may facilitate discussion of policy issues around a shared set of facts. Second, we seek to provide market participants with a clear statement of the concerns our analysis raises."

Credit unions are not specifically mentioned in the white paper, but the CFPB says it is looking at the credit union alternative to a payday loan and will publish its findings at a later date. As for what the CFPB will do specifically about non-regulated entities that make these loans, Director Richard Cordray is quoted by the CU Times as saying “the purpose of all our outreach, research, and analysis on these issues is to help us figure out the right approach to protect consumers and ensure that they will have access to a small loan market that is fair, transparent, and competitive.”

Visit the CFPB website to download and read the full white paper.