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Payday lenders have caught the attention of CFPB

Usually seen in storefronts, strip malls or grocery stores, payday lenders have become increasingly present throughout the country over the past 20 years, and now command a strong internet presence as well.

The grumbling about the payday lending industry is growing louder, and now consumers who have been victimized by such offers have a high-profile resource to turn to.

The U.S. Consumer Financial Protection Bureau recently announced it is accepting complaints from customers who have encountered problems with payday loans - often referred to interchangeably as "cash advances" or "check loans," usually offered on a short-term basis in sums of $500 or less. Many Americans burdened with unmanageable fees, escalating interest rates and the demanding collection tactics associated with such loans previously had nowhere to turn.

Messing with Texas 
The CFPB's entrance into the fray comes as discontent has grown throughout the country, particularly in urban areas where such loan options are seemingly ubiquitous. Local politicians throughout Texas have brought attention to what's amounted to a debt epidemic in Austin, Dallas, El Paso, Fort Worth and San Antonio, pushing zoning restrictions and imposing limitations to what lenders can charge and how much they can give out. But state laws offer little additional resistance in Texas or elsewhere, and there has been no oversight on the federal level at all - until now.

"Before the Consumer Bureau, consumers who had trouble with payday lending products had few places to turn," said CFPB director Richard Cordray. "By accepting consumer complaints about payday loans, we will be giving people a greater voice in this market."

Payday loans are attractive for the quick access they offer to credit, and therefore the lenders initiating these services often target under-qualified borrowers. Repayment plans and interest levels, however, are mostly non-negotiable, and the terms often dictate that the borrower return their debt in full upon receiving their next paycheck. Payday lenders also frequently request access to borrowers' checking accounts in advance and levee that access if their rather rigid loan terms are not met.

Frequently seen in storefronts, strip malls or grocery stores, payday lenders have become increasingly noticeable throughout the country over the past 20 years and now command a strong internet presence as well. Just within the past year and a half, the CFPB's oversight has been extended to include internet payday lenders, and it has taken steps to learn more about the market within that time.

According to National Mortgage Professional Magazine, a report released by the CFPB earlier in 2013 found a common trend of indebtedness among customers who have used their products. Based in part on the findings of that report, the bureau widened its channels of communication, allowing consumers to submit complaints regarding: unexpected fees or interest, unauthorized or inaccurate changes to their bank accounts, payments to their loan that went uncredited or unrecorded, problems encountered while trying to contact the lender, approval for or reception of a loan that was not applied for, and never receiving money after being approved for a loan.

Fully focused
It remains to be seen how attracting the attention of the relatively new regulatory agency will affect the payday loan industry. The CFPB began taking consumer complaints about credit card companies in July of 2011, and has since expanded its scope to include claims regarding mortgages, bank accounts and services, private student loans, consumer loans, debt collection, credit reporting agencies and money transfers. Its success rate in recouping consumer losses has been varied, but as a fully funded and resourced faction of the federal government, its oversight has the potential to cause serious inconvenience for anyone against whom complaints are filed. 

Of the regulations that have been floated, most have to do with disclosure and collection practices. Local policymakers in Texas and elsewhere have also emphasized the need for payday payments to be limited to an affordable percentage of a given borrower's income. In most situations, monthly payments that exceed 5 percent of an individual's gross monthly income are deemed unaffordable. There has also been proposed language requiring evenly spread costs over the life of payday loans, but for the most part the concerns are with harmful collection and repayment trends that coincide with the vague or misleading disclosure of total costs and monthly payment amounts.

Dallas City Council member Jerry Allen told the Dallas Morning News that, when emphasized and adhered to, such regulatory pushes have put a dent in payday loan providers' business. In Dallas, 38 payday lenders were recently shut down for operating in pawn shops, a practice that violated city code, and reportedly no new lending locations have been opened since tougher zoning laws were enacted in 2011.

"[There is] no question that [lenders] are taking a hit in cities that have passed tougher ordinances," Allen said. "[The issue] ultimately will need to be resolved at the national level."

For now, the CFPB's approach will mirror the way it has tackled its previous areas of focus. The companies in question will have 15 days to respond to complaints and offer details regarding the steps they are taking to improve their practices. If its short track record is any indication, the CFPB's presence alone will be enough to apply some pressure.