The state of Delaware has problems with payday loans, despite the alternative financial product banned from lending in the marketplace.
Delaware is one of the states that has joined the crusade against short-term, high-interest loans. However, a recent study came out that found a large number of the unbanked and underbanked use payday loan, and the numbers of those not using the traditional banking system are higher than the national average, which is a development that has troubled many Delaware officials and financial institutions.
Over the past few years, Delaware officials have implemented new rules and regulations to rein in payday loans in Delaware and ensure that borrowers are protected from so-called predatory lending.
However, Delaware is one of many states wondering: what will happen if the Consumer Financial Protection Bureau (CFPB) imposes its proposal of federal regulatory rules? Will the states’ initiatives be null and void? Will states be required to follow the federal government’s own rules and regulations?
Everything remains foggy at this point, and it is even more so now that Donald Trump is the president-elect. It is unclear if he will restrain the federal consumer watchdog agency or allow it to move ahead.
Despite the tough measures already in place in Delaware, critics fear that the lenders of short-term, high-interest loans will be able to get through the loopholes and operate without any fear of reprisal. If that happens then it could open the window to other states’ legislation being ignored by lenders.
This was brought up by Liz Coyle, executive director of Delaware Watch, in a letter last month.
“Dangerous loopholes in the proposed rule could provide payday lenders a license to creep back into our state, eroding protections developed through decades of work that save Delaware consumers millions of dollars each year,” she wrote.
Delaware has had a ban on payday loans since 2004, though the occasional lender pops up. The biggest problem as of late has been the proliferation of payday loan companies online. This is something that is giving states and provinces across North America and Europe a major headache. Nonetheless, the payday loan ban gives lenders a prison sentence of up to 20 years if they’re caught and convicted.
It is true that many expect a Donald Trump administration and a Republican-controlled Congress will toss out many of the provisions in the often lambasted Dodd-Frank bill. However, it remains uncertain what will happen to the CFPB, which was established in the wake of the economic collapse.
Critics have often argued that payday loans target the most vulnerable and send low- and middle-income households into a never ending debt trap. Proponents purport that payday loans are necessary because many of the impecunious consumers do not have access to conventional forms of credit or even banking options due to language barriers, criminal records or even something miniscule as the lack of funds.
Jurisdictions around the world have imposed new rules and regulations that either limit how payday loan stores operate or restrict them from entry or expansion entirely.