Strong CFPB Rule needed Even in Payday-Free States

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Representative Tom Jacobson from the Montana State Legislature's co-authored article in the American Banker with Hank Klein and Al Ripley.

"With federal curbs on payday loans approaching, we should look to the experiences of these states to consider the ripple effects that a strong or weak national payday lending rule could have. After all, 90 million people — nearly a third of our nation's population — live in the 14 states and the District of Columbia that ban payday lending.

We are three of those 90 million people. We live in Arkansas, Montana and North Carolina — three states that effectively prohibited payday lending during the last decade. Though our states differ culturally and economically, their experiences with payday lending have been the same. Consumers are much better off without the product. Payday loans are high-cost, predatory products that are marketed as a source of short-term, emergency credit, but they actually ensnare people in long-term debt traps.

States that have banned the product are reporting positive results. Take North Carolina. After the Tar Heel state banned payday lending in 2006, the state commissioned a study in 2007 to examine the effects of the ban. One of the study's key findings: Most former payday loan borrowers reported that the ban had had a positive effect on their households. And contrary to what the payday lending industry would have people believe, the study also found that North Carolina's payday lending ban did not reduce access to credit — a finding that is consistent with the experiences of advocates and credit counselors in other states that ban payday lending.

No longer targeted for high-cost, predatory loans they cannot afford, people in our states have found other ways to meet their financial needs — ways that do not result in never-ending debt traps or lead to unregulated loan sharking as industry insiders like to allege.

It would be wrong to assume, however, that our states don't need a strong CFPB rule. In fact, it is because our states already ban payday lending that we need a strong CFPB rule. We, along with our colleagues in other states that ban payday loans, have fought off countless attempts by the payday lending industry to break into our states with their high-cost, predatory loans. So far, we have been successful. But a weak federal rule that continues to allow payday and payday-like loans could put our states' existing consumer protections in extreme jeopardy."