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"Hardworking Ohio families shouldn't be trapped with a lifetime of debt after accessing a short-term, small-dollar loan," Brown said. "However, that's exactly what is happening. On average, borrowers who utilize these services end up taking out eight payday loans a year, spending
More than 12 million Americans use payday loans each year. In
Brown sent a letter today to the
Full text of the letter is below.
Dear Director Cordray:
Small-dollar credit products affect the lives of millions of Americans.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) authorizes your agency, the
As you develop these rules, it is essential that all of these like products are treated equally. In your testimony last week before the
Because most small-dollar, short-term loans possess three of the "Four Ds" that negatively affect consumers - deception, debt traps, and dead ends - the
Auto Title Loans - Auto title loans contain similar features to traditional payday loans. Instead of providing a postdated check, borrowers must provide their car's title as collateral. Auto lending advertisements may tend to promote the speed with which consumers will have access to cash, but may not generally mention the interest rate of the loans, the likelihood a loan will result in a vehicle being repossessed, or the likely amount of time it will take for the borrower to repay the debt. One study described the pricing terms as "shrouded by the timing in which the borrower receives it," namely at the time that the loan is made, rather than the beginning of the application process. The same study noted that laws governing title loans generally do not disclose the "pattern of usage information to inform borrowers about the likely consequences of having taken out a loan." Researchers note that the proceeds from interest and fees are much more profitable to lenders than the value of repossessed collateral.
Online Payday Loans - While online payday loans make up a minority of the total loan volume, their market share has been growing in recent years. Online loans tend to be offered with fees equal to or higher than storefront loans - their major cost drivers are customer acquisitions (often through lead generation) and loss rates that are higher than brick-and-mortar payday lending. Some online payday lenders have been establishing operations offshore or in states with permissive lending laws in order to argue that they are not subject to more stringent restrictions.
Installment Loans - A number of payday loan companies have expressed their interest in or intent to move to an installment loan model. In states with more restrictive lending laws, installment lenders may tend to sell add-on products - such as credit, auto, and health insurance policies - the associated costs of which are not necessarily required to be disclosed to consumers under the Truth in Lending Act (TILA). Some have expressed concerns about certain features of installment loans, including high origination fees and front-loading of interest, that create incentives for repeated roll-overs, also known as "flipping." For example, one installment lender reported that rolling over existing loans makes up more than three-quarters of its loan volume.
Thank you for your attention to this matter of great importance to
Read this original document at: http://www.brown.senate.gov/newsroom/press/release/following-ohio-supreme-court-ruling-on-payday-loans-brown-calls-for-new-protections-to-fight-back-against-predatory-lending-practices
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