WASHINGTON (Legal Newsline) – The Consumer Financial Protection Bureau (CFPB) released a report that details the steep, hidden costs to online payday loans that come when online lenders debit payments from a consumer’s checking account.
“Taking out an online payday loan can result in collateral damage to a consumer’s bank account,” CFPB Director Richard Cordray said. “Bank penalty fees and account closures are a significant and hidden cost to these products. We are carefully considering this information as we continue to prepare new regulations in this market.”
Most people use payday loans as a way to get quick access to money, usually to bridge a cash flow shortage between paychecks or other income. These loans come with high interest rates.
According to the CFPB’s research, half of all online borrowers rack up an average of $185 in bank penalties because of debit attempt overdrafts or fails. Of those borrowers, one-third of those who receive penalties have their accounts temporarily closed.
The CFPB is examining this research as it makes regulatory changes to the industry.