Is there another side to the payday lending debate?

As government regulators move to restrict payday loans, advocates say the stricter regulations could harm the people they are trying to help.

First Look

As the Consumer Financial Protection Bureau moves to impose tougher regulations on payday loans, some members of Congress are coming to to the aid of lenders.

On Thursday, the House Appropriations Committee voted, 30-18, to block the CFPB’s proposed rules, saying tougher regulations would only hurt payday lenders and drive borrowers to loan sharks.

"I don't want my constituents being forced to loan sharks or forced out onto the streets because another government agency wants to regulate businesses out of business," Rep. Steve Palazzo (R) of Mississippi, who proposed the measure, said. “Drying up all of the access to credit will cause small businesses to close, people to lose their jobs, and many to turn to less-regulated, often illegal means of securing credit."

Many committee Democrats opposed the measure, saying the block would end up helping the payday loan industry at the expense of borrowers.

"Any proposal that would interfere with the CFPB's ability to act on payday lending would be extremely damaging to the public interest and to millions of working families," said Rep. Jose Serrano (D) of New York.

Payday loans allow a borrower to take out a short-term loan, with the understanding that the loan will be repaid on the borrower’s next payday. In general, the majority of borrowers are white, female, and employed, and between the ages of 25 and 44, according to a 2012 report from The Pew Charitable Trusts. Payday loans, however, are most often given to borrowers who are African-Americans, home renters, and people who are divorced or separated.

Payday loan borrowers rely on these short-term loans to pay for everyday expenses, such as rent payments or electricity bills. Because most payday loans come with a high interest rate attached, it can lead some households into a debt spiral, but experts say that’s not universally the case.

“Some households use them widely. They have a short-term crunch, and payday loans are very useful. They repay them quickly and move on,” Jonathan Morduch, a professor of public policy and economics at New York University, told The Christian Science Monitor in June.

Advocates for payday loans say restrictions on the lending practice only end up hurting the poor.

“[T]he [CFPB] rules will likely limit access for the poor to payday loans just as they become widely available to the middle classes,” Stephen L. Carter, a professor of law at Yale, wrote for Bloomberg.

This report contains material from the Associated Press.