The United States consumer watchdog agency unveiled a series of proposed rules to curb the payday loan industry, which has generated mixed reviews from groups and the industry.
On Thursday, the Consumer Financial Protection Bureau (CFPB) announced its proposal that would cap the number of payday loans a customer can borrow, limit how many times a payday loan store can debit an account and require businesses to inquire about the client’s income to determine if they can repay the principal sum.
According to CFPB director Richard Cordray, the general public will have up to 90 days to comment on the proposal. Since it doesn’t require conrgressional approval, the rule could be rolled out as early as next year. The CFPB, which has chastized the business models of payday loan companies, has taken swift action against a often criticized industry.
North of the border, organizations are calling for similar action. Some Canadian groups are urging the federal government to follow in the footsteps of the CFPB by adopting similar measures that would rein in an industry that has faced a lot of ridicule over the years.
Despite provinces and municipalities implementing their own rules and regulations, ACORN Canada says Ottawa needs to intervene and prevent consumers from entering into a debt trap.
“Although some needed proposed protections — such as the requirement that longer-term loan payments consume no more than 5 per cent of a borrower’s monthly income — were dropped, this crackdown starting at the national level is desperately needed in the U.S. and Canada,” said ACORN spokeswoman Donna Borden in a statement.
Across Canada, each province has installed its own cap on payday loan interest rates. Meanwhile, the Department of Finance has confirmed that the government is honing in on raising awareness about the dangers of borrowing internet loans online. It also noted that it’s working closely with the provinces to “maintain the integrity of the payday lending framework.”
Tom Cooper, director of the Hamilton Roundtable for Poverty Reduction, told the Associated Press that this isn’t good enough. Cooper believes the Canadian government has facilitated the rise of payday loans in the country because the national banking system has been a failure.
“The federal government really kicked the can of regulation down to the provinces and so we have a patchwork quilt of what provincial governments are doing in terms of regulating the payday loan industry,” he told the news organization.
Canadian payday loan businesses warn that if Ottawa were to install its own regulations, which effectively duplicates or even triplicates other legislation, then it would eliminate an important financial option for struggling consumers.
“A huge number of Americans who rely on short-term loans who under these new rules will be unable to get them,” said Canadian Payday Loan Association president Tony Irwin. “Those are people who need money now so if actions are going to be taken that are going to restrict the markets, you need to have alternatives in place, if not where are they going to go?”
Anti-poverty organizations, the Canadian Union of Public Employees (CUPE) and liberal media outlets are encouraging the government to establish a National Postal Bank.