Committee Explores Impact of Payday Loans on Older Americans
WASHINGTON, DC - The U.S. Senate Special Committee on Aging held a hearing on Wednesday to examine the impact payday and other short-term high-cost lending products have on seniors.
The hearing came in response to reports that cash-strapped older Americans were finding it easier than ever to opt for the expensive loans, whose annual interest rates can range from 225 percent to more than 500 percent.
According to a recent study by the Center for Responsible Lending, Social Security recipients now account for more than a fourth of all bank payday loan borrowers. Banks are among the newest players to enter the payday loan marketplace by offering so-called deposit advances which seniors often secure through their pending monthly Social Security benefits.
While the industry contends the loans are popular among users, consumer advocates worry that fees and overdrafts associated with the products are eroding seniors' benefits and trapping them in a cycle of debt.
Such was the case of 70-year old Annette Smith of Rocklin, California, who told lawmakers at the hearing how she got stuck in a debt trap after taking out a $500 deposit advance that cost her more than $3,000 in fees.
In April, the Consumer Financial Protection Bureau (CFPB) found these loans typically lead to a cycle of debt for consumers and indicated a willingness to exercise oversight over payday and short-term lending products. That same month, the Federal Deposit Insurance Corporation (FDIC) and the Office of Comptroller of the Currency (OCC) released proposed guidance on deposit advances, requiring, among other things, that banks examine customers' income and expenses to make sure that they can actually afford to pay off the loan and associated charges.
Other witnesses at the hearing included: federal and state regulators; representatives from the payday loan and banking industries; and, a consumer advocate.
SENATE SPECIAL COMMITTEE ON AGING
HEARING: Payday Lending: Short-term Solution or Long-term Problem?
2:00 p.m., EDT, Wednesday, July 24, 2013
Dirksen Senate Office Building, Room 562
David Silberman, Associate Director, Research, Markets, and Regulations, Consumer Financial Protection Bureau
Mark Pearce, Director Division of Depositor and Consumer Protection, Federal Deposit Insurance Corporation
Eric Wright, Staff Attorney, Maine Bureau of Consumer Credit Protection
Annette Smith, Deposit Advance Consumer/Social Security Beneficiary
Rebecca Borne, Senior Policy Counsel, Center for Responsible Lending
Dennis Shaul, CEO, Community Financial Services Association of America
Richard Hunt, President and CEO, Consumer Bankers Association
To watch the hearing, as well as access Member statements and witness testimony click here.