Financial reforms were originally debated to regulate banks and financial lenders once it became clear that the applications for securing a mortgage for subprime lenders had been mismanaged. In addition, once money got tight for banks, they turned to pick the pockets of the consumers by adding ATM fees, increasing interest rates on credit cards, and reducing equity lines of credit. In the past, financial institutions made most their money on attracting people to save with them. These days bank fees and interest have produced a windfall for the very people who had to be bailed out due to poor financial management of the banks. The government has decided it’s time now to protect the consumer by producing legislation to make financial lenders behave better, but payday lenders and cash checkers are already heavily regulated. They believe they should be excluded from current legislation otherwise the new laws may be enough to put them out of business.
Reforms for Everyone
Regulating banks and providing some sort of oversights for their transactions are important to stabilizing the economy and ensuring proper growth in years to come. Few people would argue otherwise after the crash of 2008. However, banks are not the only financial institutions out there that lend money or have financial services. Unconventional financial institutions like payday lending and check cashing companies were not involved in mortgage mess and have always been heavily regulated within their own industry. Adding additional regulations to an industry that didn’t get a bailout, and has already stringent guidelines, is arguably unfair. However, the Obama administration favors no exclusionary policies on the financial reforms and it may be that even if you’re not a bank, but have some sort of financial service, you will have to also abide by the new regulations.
Payday Lenders Fight Back
Recently, check cashers and payday lending business owners stormed Capitol Hill in an effort to be excluded from upcoming reforms. Payday lending has been regulated in many states already, and they argue that putting up more Federal regulations on their industry is not fair. State legislation is already onerous enough, they argue, with some states banning payday lending entirely. There is even now a bill in Congress to limit the number of payday loans a consumer can access within one year to a total of six. The time to pay back a loan may also be lengthened. Of the most crucial issues with regards to the new laws is any request to cap interest rates. Since payday lending deals with a high-risk, low-income, demographic they are known for charging triple-digit interest rates. The rates are necessary due to the high risk. However, if they are legally capped to a rate that will not cover the risk to lend, many lenders may just close up shop, leaving these same low-income consumers with few other lending choices. It’s important that those in Congress understand the impact that their legislation will have on other financial industries, not just banks. Thus, a new lobbying effort costing 2.6 million is being funded by Community Financial Services is underway to make sure their voices are heard.