It’s pretty easy to pick on payday lenders - They target the poor and desperate with prices in the 400%+. When most people hear about these loans, they are shocked and dismayed to find that they are widespread and legal in many states. - What’s harder to do is make this serious issue funny.
But John Oliver has done so in a hilarious and informative piece on predatory lending on his show ‘Last Week Tonight’ (please note there is profanity and crude humor). If you don’t know much about payday lending, this is as good a place to start. And if you’ve been reading about the payday issue for years, this is a refreshingly outspoken video that also addresses the challenging politics of regulating these products.
One of my favorite parts is when John Oliver compares payday loans to heroin. Although this is an extreme analogy, it also rings true. We have decided as a society that there are products that - even when there is a strong demand for them - are so damaging to personal health they should not be easily accessible and need to be heavily regulated or outlawed. Research has consistently shown that payday loans lead a majority of borrowers into a cycle of debt that is very hard and costly to climb out of. These loans are also correlated with a significantly higher rate of bankruptcy. In other words, payday loans are decidedly bad for your financial health.
If you watch the John Oliver video you may be left wondering whether the government is doing anything to regulate the payday industry. In many states, including California, there isn’t enough good news to report - with the strong exception being many local cities who are using their zoning laws to restrict growth of the industry. At the national level, we are expecting new “rulemaking” (regulations) on payday loans from the Consumer Financial Protection Bureau (CFPB) sometime before the end of the year.
The CFPB cannot legally restrict interest rates but many groups, including Opportunity Fund, are encouraging them to adopt strong regulations. Those regulations could include a restriction on the number of loans a borrower may take out in a given year (to reduce the repeat borrowing that makes these loans even more costly) and a requirement that payday lenders make sure borrowers can repay the loan before making it (basic underwriting). To weigh in on this yourself, consider signing this petition from the California Reinvestment Coalition. Or just watch the John Oliver piece, get informed and have a good laugh in the process.