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Some people rely on borrowing money from themselves. You get a payday loan. It's cash you promise to pay back when your next paycheck arrives. The Trump administration has been scaling back enforcement of this industry, and Kathy Kraninger, who runs the Consumer Financial Protection Bureau, will likely be asked why when she testifies before a House panel today. Here's NPR's Daniella Cheslow.
(SOUNDBITE OF DRAWER CLOSING AND KEYS JANGLING)
UNIDENTIFIED ADVANCE AMERICA EMPLOYEE: (Counting out bills, unintelligible).
DANIELLA CHESLOW, BYLINE: This is the sound of a payday loan, cash you can get quickly just by walking into a store. I'm at this Springfield, Va., branch of Advance America during a rainy lunch hour, and a woman who works as a medical assistant comes in.
ANGELA: I borrowed $300. Interest is $73.
CHESLOW: Angela, who asked us to only use her first name to protect her privacy, is getting a 30-day loan to cover a family trip to New York. She says she prefers a payday loan because she doesn't trust herself with credit cards. It's convenient and quick. All Angela had to do was show her ID and write a check for the day the loan was due. She brought in a bank statement and a pay stub to get her first loan, but she's taken out a few since then - about two a year.
JAMIE FULMER: We provide consumers from all across the country with the ability to access money when they need it most.
SCOTT ASTRADA: The very model of the loan is to take out as much money from the borrower's bank account until that inevitable default.
CHESLOW: That's the industry view from Jamie Fulmer at Advance America, which has 1,900 payday lending branches, and a critical perspective from Scott Astrada at the Center for Responsible Lending, a consumer advocacy group. And this is the heart of the debate behind a rule drawn up under the Obama administration that never took effect. The rule would require payday lenders to make sure borrowers are able to repay their loans. Angela is confident she can pay this loan back, even though the interest rate works out to 300 percent over the course of a year.
The CFPB researched this issue. In a 2014 report, it found half of all payday loans are in a sequence at least 10 loans long with spiraling costs to borrowers. And that's why the bureau created the rule under former director Richard Cordray. He says the agency's mission has changed.
RICHARD CORDRAY: The new leadership at the CFPB has been much less aggressive about doing things that press hard on the industry to change in ways that help consumers.
CHESLOW: Democrats took control of the House, and they oppose rescinding this payday loan rule. Consumer advocates say the rule is vital. So do veterans groups. The NAACP says, quote, "payday lenders have long preyed upon communities of color." But Quyen Truong, who served as deputy general counsel at the CFPB under Obama, says banks have tighter criteria than other lenders for small dollar amounts. Sometimes borrowers don't have good enough credit to qualify for credit cards. Under the current rules, she says...
QUYEN TRUONG: There's the possibility that some segments of the population don't have very good alternatives to the payday product.
CHESLOW: She says the rule would have posed an existential threat to the industry and some lenders had already shut down, anticipating the impact. Angela, the borrower I spoke to, says she's grateful the rule may not take effect.
ANGELA: I'm happy that they have this. I can actually get a loan and be able to pay them back easily and have extra money with a little bit of interest but - is able to pay it back.
CHESLOW: She says she pays her loans back early to save on interest. But payday lenders in most states don't offer discounts for customers who pay early, and the CFPB's own research shows many borrowers get trapped by debt. With no change in regulation, that will continue to be a problem. Daniella Cheslow, NPR News, Springfield, Va.
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