A new analysis of consumer complaints about "predatory" loans highlights the importance of strengthening proposed federal rules to crackdown on payday lending, according to the Illinois PIRG Education Fund.
The organization reviewed complaints about payday, installment and auto title loans to the Consumer Financial Protection Bureau (CFPB).
The analysis "found significant evidence of the major problem with payday loans: borrowers can't afford these loans and end up trapped in a cycle of debt," Illinois PIRG Education Fund Director Abraham Scarr said in a news release. "Ninety-one percent of written complaints were related to unaffordability."
Here are key findings from the Illinois PIRG Education Fund's report:
* Ninety-one percent (91%) of all written explanations showed signs of unaffordability, including abusive debt collection practices, bank account closures, long-term cycles of debt, and bank penalties like overdraft fees because of collection attempts.
* The database reveals problems with a full spectrum of predatory products and services, including storefronts and online lenders, short-term payday, long-term payday installment loans, and auto title loans.
* More than half (51%) of the payday complaints were submitted about just 15 companies. The remainder of complaints were spread across 626 companies.
* The top five most complained about companies in the payday categories were Enova International (doing business as CashNetUSA and NetCredit), Delbert Services, CNG Financial Corporation (doing business as Check 'n Go), CashCall, and ACE Cash Express.
* Consumers submitted nearly 10,000 complaints in the payday loan categories of the database in two and a half years. Over 1,600 complaints included written explanations of problem since last March when the CFPB started allowing consumers to share their stories publicly.
* The two largest types of problems under the payday loan categories were with "communication tactics" and "fees or interest that were not expected." These two issues made up about 18% of all complaints each.
Payday lending provides short-term access to credit, but usually comes with high interest rates, often in the triple digits, and expensive fees.
In June, the CFPB proposed new regulations to rein in the payday lending industry. The proposal requires lenders to determine whether borrowers have the ability to repay their loans and give borrowers written notice before trying to debit their bank accounts to collect loan payments, among other regulations.
Woodstock Institute President Dory Rand commented on the Illinois PIRG Education Fund's report.
The findings "illustrate the importance of creating a strong CFPB rule that requires an Ability To Repay determination in every case so that consumers will not become trapped in debt," she said.
Scarr added: "To truly protect consumers from the debt trap, it will be important for the CFPB to close exceptions and loopholes ... in what is otherwise a well-thought-out proposal. We encourage the public to submit comments by October 7th to the CFPB about strengthening the rule before it is finalized."