The Consumer Financial Protection Bureau said its proposal to roll back regulation for payday lenders will give consumers more access to credit — but as far as senior citizens are concerned, that may not be a good thing.
The Obama-era regulation, which was finalized in 2017 and was to be implemented in August of this year, required payday lenders to determine if the borrower could afford loan payments and still meet basic living expenses. The government agency said this week it plans to rescind its underwriting provisions and delay the rule’s compliance date to November 2020.
Kathy Kraninger, director of the Consumer Financial Protection Bureau, said in a statement the agency will evaluate comments, weigh the evidence and then make a decision. The bureau did not respond to a request for further comment.
Payday loans are high-cost, short-term, typically used for payouts of $500 or less, and are to be paid at time of the borrower’s next paycheck. Lenders are first in line for repayment, which could come from a consumer’s paycheck, Social Security benefit or pension check or through access to a checking account. These loans have an average annual percentage rate of 391% and are available from lenders’ storefronts or online, according to the Center for Responsible Lending, a Durham, N.C.-based nonprofit research and policy advocacy group. “It puts them in harm’s way and is keeping people trapped in an unaffordable cycle of debt that leaves them worse off than when they started,” said Diane Standaert, executive vice president and director of state policy at the Center for Responsible Lending.
Low-income Americans are often the most common individuals at risk of needing payday lenders, but seniors who live on a fixed income with little in savings, are, too. And those numbers are growing.
The Community Financial Services Association of America, the trade association for payday and other short-term lenders, said in a statement it was pleased with the CFPB’s decision, but disappointed the agency decided to maintain certain provisions of the 2017 rule. “Continuing to target legal and licensed state-regulated lenders through regulatory restrictions on their ability to offer short-term credit options will push consumers into dangerous, harmful alternatives,” it said.
“Small-dollar loans serve as a vital form of credit for millions of American consumers across all demographic lines,” said Dennis Shaul, chief executive officer of CFSA. “This includes seniors, who make up a small portion of small-dollar loan borrowers.”
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But more seniors are turning to this type of short-term financing.
The number of Americans 62 and older using payday lending tripled between 2015 and 2016, according to a California Department of Business Oversight report. Nearly one in four payday loans were given to senior citizens, the report found. The annual percentage rate for these loans were 372%, up from 366% in 2015.
The share of payday borrowers 65 and older in Florida doubled between 2005 and 2015, as well — from 3.4% to 8.6% — and this age bracket was the fastest-growing group to participate in payday lending, according to a 2016 report from the Center for Responsible Lending. The growth rate of this borrowing for seniors is even higher than the growth rate of the number of seniors in the state during the same time frame.
Seniors use these loans to pay for medical bills or rent, but because they may not be able to pay them off from a following paycheck, they end up with increased overdraft fees, high interest and possibly bankruptcy, Standaert said. Payday lenders target older populations, especially because they receive guaranteed income in the form of Social Security benefits. “It’s a steady source of income they can count on,” she said. “We have seen research that payday lenders’ storefronts cluster around government-subsidized housing for seniors and the disabled.”
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Not all older Americans can fall back on a nest egg. About 40% of middle-class Americans will live near or in poverty by the time they’re 65 years old, a Schwartz Center for Economic Policy Analysis at the New School report found. Up to a quarter of households aged 65 and older rely on Social Security for 90% of their retirement income, three different studies found. (The average Social Security benefit check is roughly $1,400 a month.)
Many seniors also lack access to quality financial advice, which could deter them from going to payday lenders or help them create a budget to make ends meet, said Brent Weiss, co-founder and head of planning at Facet Wealth in Baltimore. “That makes them more susceptible and vulnerable,” he said. “Whether it’s a payday loan company or scammers, they can prey on [seniors’] lack of literacy in this area.”