EXPERT AVAILABLE: Federal Government Takes Positive Step in Protecting Consumers, MU Payday Lending Expert Says

November 19th, 2010

The views and opinions expressed in this “for expert comment” release are based on research and/or opinions of the researcher(s) and/or faculty member(s) and do not reflect the University’s official stance.

COLUMBIA, Mo. – This week, the U.S. Treasury Department announced the hiring of key leaders for the newly formed Consumer Financial Protection Bureau (CFPB) implementation team. The CFPB was created to help regulate depository institutions like banks and non-depository institutions, such as payday lenders. Brenda Procter, a payday lending expert from the University of Missouri, says that while payday lending has become a serious concern across the country, the creation of the CFPB shows that the federal government is taking action to help fix the issue. Procter met this week with Elizabeth Warren, assistant to the President and special advisor to the Secretary of the Treasury, to discuss ways to help address the problem.

“More payday loan storefronts are in this country than McDonald’s and Starbucks combined,” said Procter, who is an MU Extension specialist in the Personal Financial planning department in the College of Human Environmental Sciences. “They’re everywhere, particularly in our most vulnerable communities. Many consumers get trapped in a cycle of debt that they cannot escape.”

Procter believes this new step of hiring a director to oversee non-depository institutions such as payday lenders and rent-to-own stores will give some focused attention to the issues that consumer advocates have requested for years.

“Historically, there has been virtually no regulation of payday lenders or other high-cost lenders at the federal level,” Procter said. “States have been left to deal with the problem, and many have struggled to enact any kind of meaningful legislation or regulation. For example, in Missouri, which has the fifth-most payday lenders per capita, consumers pay an average of 431 percent in annual interest for payday loans.”

While Procter acknowledges the newly created CFPB does not have the authority to cap interest rates, as some states have done, she says they do have the power to regulate other aspects of payday lending, such as limiting the number of loans. She believes this is the first step in leveling the playing field between consumers and lenders.

“This is the first major federal entity to represent the people in the financial marketplace, which is fraught with hazards and challenges,” Procter said. “It remains to be seen how this will play out, but having a federal regulator looking over lenders’ shoulders gives consumer advocates some hope for the future.”

Brenda Procter has been a state MU Extension specialist with a focus on poverty and has served as an MU personal financial planning faculty member for 17 years. Procter has worked extensively with low-income families and maintains the Poverty At Issue website, a resource for agencies and educators working with people in poverty. She also volunteers as an income tax preparer and educator through the Volunteer Income Tax Assistance or VITA program.