A Consumer Financial Protection Bureau plan detailing ways to protect consumers from payday lending "debt traps" has earned widespread support from Americans, according to a survey by Pew Charitable Trusts.
The organizations research, conducted in May, reveals 3 in 4 Americans believe payday loans should be more regulated and only 1 in 10 view payday lenders in a positive light.
The CFPBs plan, submitted in March, restricts lenders from collecting funds from customers in ways that often result in excessive fees. The CFPB wants to give lenders two options: either ensure borrowers have the ability to repay before issuing credit or comply with limitations after the loan is issued such as restricting how often it can be rolled over or reissued within a certain time frame.
"The proposals we are considering would require lenders to take steps to make sure consumers can pay back their loans," said CFPB Director Richard Cordray. "These common sense protections are aimed at ensuring that consumers have access to credit that helps, not harms them.
The Pew survey reveals 78% of consumers support the idea of requiring a lender to check a borrower's ability to repay a loan before issuing funds. Approximately 75% believe consumers should be allowed to make payments over the course of several months, rather than just two weeks.
An estimated 12 million Americans use payday loans each year with the average loan roughly $375, according to the Pew survey. Because they are usually not paid back in time and must be made repeatedly, the average payday loan incurs $520 in fees.
Nearly 8 in 10 survey respondents would like banks and credit unions to be allowed to offer small-dollar loans at rates lower than payday lenders.
Payday lending representatives believe the CFPBs plan is too broad and would restrict access to small-dollar credit.
"Our preliminary review indicates customer will lose many of the credit options currently available today," said Edward D'Alessio, executive director of the Financial Service Centers of America, during a recent field hearing on the issue held by the CFPB. "Our employee base is very diverse. Approximately 80% are women, more than two-thirds are minorities a rulemaking that causes FSCA members to close their doors will severely impact these hardworking employees and their families."