WASHINGTON (WISH) — Federal regulators are cracking down on payday lenders.
Nexstar’s Washington correspondent, Drew Petrimoulx, reports that many say payday lenders target vulnerable people and trap them in deals they can’t afford.
Payday loans are promoted as emergency cash for people in a bind.
And in the United States, there are more of these lenders than McDonald’s restaurants.
“These are exploding loans that are really causing a lot of damage,” said Michael Calhoon, at the Center for Responsible Lending.
Calhoon says the loans target people with poor credit and snare them in an endless cycle of interest payments.
Payday lenders are already banned in one-third of states.
“This is an effort to stop the debt trap that so many of my constituents face,” said Rep. Terri Sewell, D-Ala.
This month the Consumer Financial Protection Bureau (CFPB) issued new restrictions on who can receive the loans and how often they’re doled out.
“[The bill] puts the onus on the payday lenders to make sure people have the ability to repay,” Sewell said.
Lenders say the rules will put many of them out of business and leave people without an option to get money in an emergency.
The CFPB, which authored the rules, has been a frequent target of Republicans in Congress who say the agency oversteps its bounds.
Rep. Jeb Hensarling, R-Texas, has called it “big government nannyism, which constantly makes credit more expensive and less available to hard-working Americans.”
But even many lawmakers skeptical of the agency’s reach support restrictions on payday lenders.
For their part, the lenders are promising to challenge the regulations in court before they go into effect in 2019.