The Consumer Financial Protection Bureau officially begins operating this Thursday. Elizabeth Warren, thought to be the front runner to head this agency, said the group will not ban any products. The U.S. Chamber of Commerce supports this view, pointing to various negative consequences.
Despite this, some consumers support financial product bans.
A ban, says the Chamber, would stall the U.S. economic recovery and make it difficult for consumers to obtain credit. These two situations already exist so the likely result would be a continuation of the current state.
Some financial products are more harmful than helpful to U.S. consumers, so limiting consumer options is not necessarily a negative thing.
Which products top the list of those some consumers wish to see banned? Payday loans, for one. The Center for Responsible Lending (CRL) reports that fees are about $60 for a $350 payday loan. A portion is allocated to interest that, when annualized, is hundreds or even thousands of percentage points.
According to 2009 research by the CRL, 75 percent of payday loan borrowers are unable to repay the loan within the initial term, racking up additional fees and interest.
Morgan Stanley discovered that 38.1 percent of Advance America payday lending customers took out nine to 14+ payday loans annually. Instead of bridging a gap in income, the loans could result in a financial nightmare.
Regulation seems an unlikely solution because lenders say they would go out of business without high fees and loan flipping.
People desperately in need of cash may find credit card cash advances with APRs as high as 40 percent a better financial option. Otherwise, continued flipping of a payday loan could lead to sky-high APRs for six months or even longer.
Maybe the Chamber should rethink its position on the issue of banning financial products like these.
[...] Requests For Client Financial Protection Bureau To Cast Out Financial Products [...]
[...] Requests For Client Financial Protection Bureau To Shun Financial Products [...]