Ban payday abuse is obviously a slogan to rouse the liberal voter. But as with every Washington regulatory campaign, especially in the Obama era, a lot more is going on here: Payday lending wont go away. The industry is being reshaped to suit the interests of players whose strength is pulling strings in Washington.
From the WSJ:
To voters living comfortably in Cambridge, Mass., or the suburbs of Seattle, the payday lending crackdown sounds just right: Those storefront entrepreneurs of dubious extraction are preying upon the poor. They should be banned.
But for the Consumer Financial Protection Bureau, the creation of Dodd-Frank which has been busy demonstrating the dangers of an unrestrained regulatory state, a slogan that polls well with liberal voters is only a starting point. The end result of its new payday rules, like all Obama regulatory endeavors, is to concentrate more power in the hands of Washington lobbyists and politicians and the companies that can afford to pay for them.
CFPB director Richard Cordays 1,300-page regulatory edict will require payday lenders, an industry largely made up of thousands of storefront operators, to run full credit checks on prospective borrowers (average loan $392) to test their sources of income, need for the loan, and ability to keep financing their living expenses while paying it back.
Perversely, this will make it hard or impossible to serve those customers who use the payday lending service most appropriatelywho borrow when pinched but then promptly repay and dont roll over their debt. The industry will become more focused on retaining habitual users, those who take out loans many times a year and get caught in debt traps, continually rolling over what are supposed to be short-term, high-margin loans.