The Better Business Bureau’s attack on payday loans does a disservice to consumers
The unfair and inaccurate attacks on the payday loan industry are now reaching new heights. On September 1, 2022, the Better Business Bureau (BBB) published an investigative report grouping all payday loan operations as scam artists who break the law to take advantage of people and make money. While consumers should be wary of bad actors in every industry and learn to tell them apart from legitimate companies, the BBB report does a disservice by not providing this information. The comments made certainly do not adhere to the BBB’s assignment to call out and address “substandard market behavior” as a “leader in promoting market confidence”.
Payday loans tend to be small, short-term loans that help Americans pay bills, some of which are needed for emergency purposes, that are due between their paychecks. These loans are usually small sums of money, have a short-term repayment plan, and have a higher interest rate than conventional loans. According to Mississippi State University finance professor Thomas Miller, Jr., and who testified before the Senate Banking Committee on July 29, 2021, “Americans who rely on small non-bank dollar loans are not wealthy, and many live from dubious paycheck to dubious paycheck.” Small payday loans help these consumers make ends meet and improve their credit rating.
Despite the benefits that small payday loans offer consumers, lawmakers and regulators have been hostile to the industry. Sen. Elizabeth Warren (D-Mass.) has long been hostile to payday lenders and suggested the “problem” could be solved by allowing the US Postal Service to get into banking. For this idea, Citizens Against Government Waste (CAGW) named her Porker of the Month for February 2014. In the Postal Service Reform Act of 2022, which was signed into law on April 6, 2022, Congress wisely kept the USPS to enter the postal bank as Sen. Warren continues to promote.
In 2017, the Consumer Financial Protection Bureau (CFPB) finalized a rule that the agency said would end “payday debt traps” by removing the ability of payday lenders to enforce repayment by cutting off repeated debit attempts. In May 2019, Citizens Against Government Waste sent a letter to CFPB Director Kathy Kraninger urging the agency to rescind this rule, which would consider offering a payday loan without determining a loan’s ability to repay. borrower as an “unfair” and “abusive” practice.
Among other recommendations, the BBB report suggests imposing an interest rate cap of 36%, as has already been done in several states (and to which CAGW has objected), and enacting legislation that would allow the Federal Trade Commission (FTC) to recover monetary damages in federal court. If Congress follows the BBB’s recommendations, it would allow FTC Chairwoman Lina Khan to continue her mission to wield power over every possible industry.
The payday loan industry allows consumers to make ends meet and build credit, especially low-income Americans. Despite the benefits they provide, several Democrats in Congress, federal agencies, and now the BBB are attacking an entire industry by implying that legitimate payday loan companies are tantamount to scammers who take advantage of low-income individuals and households by illegally obtaining information about these Americans and defrauding them. Rather than attacking legitimate payday lenders, states and Congress should ignore the BBB report and focus on identifying and prosecuting the crooks.