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The New Republic discuses the CFPB's role in regulating payday lending. The article illustrates the problems with payday lending and evaluates possible solutions. Fourteen states and the District of Columbia have already implemented restrictive rules such as an interest rate cap. While the CFPB can learn from certain states actions, it has to factor in the possibility of unforeseen consequences such as driving borrowers to unregulated sources of credit.
Eliminating payday lending could have unintended consequences, such as by driving the lending into other unregulated markets. In some states, that seems to have already happened, with payday lenders registering as car title lenders, offering the same loans under a different name. Whether it would happen on a large scale is less clear. In states that have effectively outlawed payday lending, 95 percent of borrowers said they do not use payday loans elsewhere, whether from online payday lenders or other borrowers. “Part of the reason for that is people who get payday loans [are] pretty much mainstream consumers,” Bourke said... if the stores in the community go away, they’re not very disposed towards doing business with unlicensed lenders or some kind of loan shark.”
