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Bankruptcy may be a life-saving remedy against payday loans

Many consumers in Florida and elsewhere get into financial trouble by relying on the failure-driven cycle of expensive and predatory payday and car-title loans. These transactions rest on a platform of extremely high-cost financing rates, making the loan payments egregiously high and necessitating re-borrowing when the short-term payday ultimatum becomes due. When this kind of debt spirals out of control, which may even be combined with high-cost credit card debt, the consumer must often decide whether bankruptcy should be considered to put the destructive cycle to rest.

The federal Consumer Financial Protection Bureau is a consumer watchdog agency established through federal legislation passed during the financial crises that mushroomed in 2007 and 2008. The agency announced early in October that it is issuing a new rule to limit the impact and vice-like grip that the payday and car-title lenders have been exerting over hapless consumers. The rule is the result of five years of hearings, town hall meetings, research data and public comments.

In issuing the rule, the agency noted that such short-term lenders establish a framework that puts consumers in a demoralizing dilemma. They find that they have to choose between defaulting, re-borrowing with huge finance charges applied, or failing to pay their basic bills and living expenses. To stop these firms from drowning borrowers in a sea of debt, the rule mandates that lenders establish protocols and a paper trail that proves that they established in advance that borrowers can handle the payback terms. 

The rule is a good first step, but much more is required to rein in such predatory lending tactics. When consumers get sucked into an overwhelming cycle of debt-upon-debt, leading to disruption of the family's ability to survive, bankruptcy can be a valuable remedy to wipe out the problem. Where consumers in Florida are qualified to file a Chapter 7 bankruptcy, relief against such pernicious debt is quick and total. The unsecured debt is wiped out without continuing payment plans, consolidations or further pressure. The purpose of the powerful federal remedy is to give consumers a fresh financial start.

Source:, "CFPB Rules to Crackdown on Payday Lending High-Fived", Oct. 20, 2017

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