Given the Missouri General Assembly’s long-standing refusal to rein in abusive payday lending practices, new rules for the industry proposed Thursday by a federal agency are good news for consumers.
Regulations from the Consumer Financial Protection Bureau would make payday lending more restrictive than state law currently calls for in Missouri and in some respects Kansas. The new rules would also crack down on predatory practices by online lenders, some of whom are clustered in the Kansas City area.
Major changes would require purveyors of payday loans, vehicle title loans and high-cost installment loans to protect low-income customers either by verifying up front that they have a reasonable ability to repay the loan or to limit repeat loans.
Lenders would no longer be able to withdraw payments, interest and fees from borrowers’ bank accounts without notifying the customer — a common practice used by online operators to drain consumers of what little money they have.
News of the draft rules prompted a predictable outcry from the short-term loan industry but also worries from consumer groups that the regulations permit too many loopholes.
We have seen in Missouri that overly permissive payday lending leads to debt traps. As regulators refine their rules, they should lean more toward toughness.