Fox News Channel 5 title FEDS crack down with payday loan crackdown article The Federal Reserve has taken aim at payday lenders in the wake of an unprecedented surge in defaults that led to the government shutting down the nation’s largest payday lender last week.
The move came as the Feds cracked down on payday lenders, which the regulator says were the “key players in the financial crisis,” according to a Federal Reserve notice released Thursday.
The Federal Reserve said it is cracking down on the payday lending industry, which has been the biggest source of defaults in the U.S. since the 2008 financial crisis.
The agency said payday loans can have high interest rates and are a “major risk” for borrowers.
It also said payday lenders can also pose a “high risk” to consumers if they “take advantage of consumers by not properly disclosing their financial status.”
The notice said it was sending letters to more than 30,000 payday lenders and borrowers, asking them to file documents with the Federal Deposit Insurance Corp. by Nov. 17.
The Fed said in its notice that it would also consider whether to extend the deadline for filing documents to Dec. 31.
Under the new rules, lenders will not be able to offer loans that are backed by federal, state or local taxes, such as property taxes.
They will also not be allowed to offer a loan to consumers with a high interest rate or to people with delinquent debts, such like a car or credit card.
The Fed said the new guidelines will help the FED avoid “misclassification” of the borrowers in the system.
It said lenders would also be required to provide borrowers with “fair and adequate” disclosures and to provide consumers with timely notification of the status of their loans.
The FED is also requiring payday lenders to take other steps to prevent repeat defaults, including increasing customer contact information, training and counseling, and making available information about their lending programs.
The FED has been taking steps to help borrowers in recent months, including issuing a consumer alert that states consumers who receive a loan are required to notify the lender of their status, and by making a loan payment every two months.
The notice was issued after the Consumer Financial Protection Bureau announced last month that it was looking into allegations that some payday lenders were charging customers fees for failing to keep up with their monthly payments.
In addition to the new consumer alert, the FUDB said it will begin collecting data about payday loans and other consumer lending activity to help determine whether the industry needs to be regulated.
The consumer alert and FUD report have prompted several companies to start offering alternative ways to get their loans, including a website and a program that allows people to pay a $1.99 monthly fee.
The website is called Lend a Hand.
Federal Reserve chairman Ben Bernanke said the government’s actions were aimed at curbing the “unprecedented level of default in the United States,” and he said the agency was working to help ensure borrowers had access to credit.
“The government will continue to focus on reducing defaults and making sure we have a strong economy,” Bernanke told reporters.
The Associated Press contributed to this report.