The CFPB is a Win for the Unbanked

[ProSense]

The CFPB is a Win for the Unbanked

by Bryce Covert

Low-income communities that turn to nontraditional banking products stand to see outrageous fees and interest rates reined in.

This week’s credit check: 17 million Americans are unbanked. Using nonbank products can lead to over $1,100 in fees a year.

As part of its mandate, the Consumer Financial Protection Bureau will begin policing both the big banks and the shadowy world of nonbanks. That latter category will include firms like payday lenders, debt collectors, and check cashers that have gone without much oversight. The Bureau just announced that it plans to oversee six new areas — debt collection, consumer reporting, consumer credit, money transmitting and check cashing, prepaid cards, and debt relief services — and will be cracking down on a host of other predatory products.

This is fantastic news for all consumers. I’ve previously written about the aggressive debt collection agency tactics that have been ramped up in the aftermath of the financial crisis, including putting people in jail. Consumer reporting — companies in charge of credit reports – aren’t much better. Not only do many reports contain errors, it’s very difficult to correct them. Both have escaped intense scrutiny, but that’s about to change.

A crackdown in nonbank lending will particularly benefit lower income people and the unbanked. About 17 million Americans are considered unbanked, meaning they don’t have a bank account or a relationship with another mainstream institution. Another 21 million are “underbanked” — they have checking accounts but still often turn to nonbank services like payday lenders and check cashers. Some of these people are turned off by mainstream banking products, but many just can’t afford the service charges and fees. Yet others find that their neighborhood offers few other options.

Payday lenders are one of the most expensive products marketed to the unbanked. They target people with paychecks, but unemployment checks also count — so business is soaring. They work as a short-term loan to be paid back when the borrower gets that check. And part of why it’s such a lucrative business is that the interest rates can be outrageous. When annualized, they can reach 450%. That figure doesn’t even include the fees, which can be an upright hit of $45. With such a shoddy deal, you would think that these products are used as a one-time solution. But as Brad Tuttle reports, consumers often get stuck in a “vicious cycle”:

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[Raine1967]

1. Thanks for this.

I think a lot of people forget how hard it is -- when caught in the cycle of poverty --- to get a bank account. Payday lenders are a step above a loan shark.

[ProSense]

2. Wouldn't it

be great if Obama appointed Elizabeth Warren to head the bureau? She's doing an awesome job.

[Raine1967]

5. Yes, it would indeed.

Just for things like this. It is proof that she really is looking out for the little guy. Right now -- especially after his speech from yesterday, I don;lt think Congress will be closing so Obama can recess appoint her -- he basically said no one is going home until they get things done. :P

I do wish this thread had a few more kicks -- information like this too oft goes unnoticed.

[TheBigotBasher]

6. They are not a step up

they are a step down, they are loan sharks with the full force of the law behind them.

[ProSense]

3. No other comments? n/t

[ClarkUSA]

4. Liberal President Obama is on the side of the poor and disenfranchised AGAIN.

I don't recall this action being taken by any other Democratic president, either.

Bookmarked under Pres. Obama's Liberal Policies:

The CFPB is a Win for the Unbanked

by Bryce Covert

Low-income communities that turn to nontraditional banking products stand to see outrageous fees and interest rates reined in.

This week’s credit check: 17 million Americans are unbanked. Using nonbank products can lead to over $1,100 in fees a year.

As part of its mandate, the Consumer Financial Protection Bureau will begin policing both the big banks and the shadowy world of nonbanks. That latter category will include firms like payday lenders, debt collectors, and check cashers that have gone without much oversight. The Bureau just announced that it plans to oversee six new areas — debt collection, consumer reporting, consumer credit, money transmitting and check cashing, prepaid cards, and debt relief services — and will be cracking down on a host of other predatory products.

This is fantastic news for all consumers. I’ve previously written about the aggressive debt collection agency tactics that have been ramped up in the aftermath of the financial crisis, including putting people in jail. Consumer reporting — companies in charge of credit reports – aren’t much better. Not only do many reports contain errors, it’s very difficult to correct them. Both have escaped intense scrutiny, but that’s about to change.

A crackdown in nonbank lending will particularly benefit lower income people and the unbanked. About 17 million Americans are considered unbanked, meaning they don’t have a bank account or a relationship with another mainstream institution. Another 21 million are “underbanked” — they have checking accounts but still often turn to nonbank services like payday lenders and check cashers. Some of these people are turned off by mainstream banking products, but many just can’t afford the service charges and fees. Yet others find that their neighborhood offers few other options.

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=433&topic_id=697754&mesg_id=697754