The Better Business Bureau’s attack on payday loans is a disservice to consumers
The unfair and inaccurate attacks on the payday loan industry are now reaching new heights. On September 1, 2022, the Better Business Bureau (BBB) released an investigative report lumping all payday loan businesses as scammers breaking the law to take advantage of people and make money. While consumers should be wary of bad players in any industry and learn to distinguish them from legitimate companies, the BBB report does a disservice by not providing such information. The comments made are certainly not consistent with the BBB’s mission to identify and address “substandard market conduct” as “leading in promoting market confidence.”
Payday loans are typically short-term, small-dollar loans that help Americans pay bills, some of which are needed for emergency purposes, that are due between their paychecks. These loans are usually for small amounts of money, have a short-term repayment schedule, and have a higher interest rate than traditional loans. According to Thomas Miller, Jr., a professor of finance at Mississippi State University, testifying before the Senate Banking Committee on July 29, 2021, “Americans who depend on small dollar loans provided by non-banks are not wealthy, and many live on an uncertain paycheck uncertain paycheck.” Small dollar payday loans help these consumers make ends meet and improve their credit ratings.
Despite the benefits that small dollar payday loans offer consumers, lawmakers and regulators are hostile to the industry. Sen. Elizabeth Warren (D-Mass.) has long been hostile to payday lenders and suggested that the “problem” could be solved by allowing the US Postal Service to enter the banking business. For this idea, she was named Porker of the Month by Citizens Against Government Waste (CAGW) in February 2014. In the Postal Service Reform Act of 2022, which went into effect April 6, 2022, Congress wisely kept the USPS from getting into postal banking, which Senator Warren continues to promote.
In 2017, the Consumer Financial Protection Bureau (CFPB) finalized a rule under which the agency would end “payday debt traps” by removing the ability of payday lenders to enforce repayment by preventing repeated debit attempts. In May 2019, Citizens Against Government Waste sent a letter to CFPB Director Kathy Kraninger, urging the agency to repeal this rule, which considers offering a payday loan without determining a borrower’s ability to repay an “unfair” and “abusive” practice would.
Among other recommendations, the BBB report suggests imposing a 36 percent interest rate cap, as has been done in several states (and objected to by CAGW), and enacting legislation to allow the Federal Trade Commission (FTC) to do so would claim monetary damages in federal court. If Congress follows the BBB’s recommendations, it would authorize FTC Chairwoman Lina Khan to continue her mission of wielding power over every industry possible.
The payday loan industry allows consumers to make ends meet and build credit, especially low-income Americans. Despite the benefit they offer, several congressional Democrats, federal agencies, and now the BBB, are attacking an entire industry by suggesting that legitimate payday loan companies are tantamount to the scammers who prey on low-income individuals and households by illegally acquiring information about these Americans and their fraud. Instead of attacking legitimate payday lenders, states and Congress should ignore the BBB report and focus on identifying and prosecuting scammers.