The Consumer Financial Protection Bureau (CFPB) proposed new rules June 2, marking the federal government’s first attempt to regulate the predatory practices of payday loan lenders. The regulations will curb certain high interest payday, auto-title, and other small loans that feature outrageous fees and interest rates and leave borrowers in long term debt.

With approximately one in 20 Americans taking out payday loans each year, the multi-billion dollar industry has faced heavy criticism for creating a profit-oriented system where borrowers cannot pay off loans and are forced to re-borrow.

According the CFPB data, 80 percent of payday loan borrowers take out more than one loan, 45 percent take out four or more, and about 15 percent take out 10 or more. So, more than one out of 10 “short-term” loan borrowers are in debt for over four months.

Under the new rules, payday loan officials and other lenders will have to incorporate a full-payment test to ensure borrowers will be able to repay the loan or installment payments on time, while also fulfilling other financial responsibilities and basic needs.

Further, the rules limit payday lenders’ ability to debit borrowers’ accounts without giving them written notice–an imperative move when 50 percent of online borrowers had a failed debit attempt or overdrafted their account in the past 18 months. These failed debit attempts lead to overdraft fees, and more than one third of borrowers with a failed payment are in jeopardy of losing their account.

The last major limit imposed on payday lenders requires a cool-off period after borrowers take out three consecutive payday loans. This is a devastating blow to payday lenders who collect 75 percent of their loan fees from borrowers who take out more than 10 loans in a year.

The CFPB rules are intended to reduce the circumstances in which payday loans can lead to exhaustive debt. However, the rules face criticism from payday loan lenders, because they limit a necessary business for many people who cannot access traditional lines of credit due to bad credit history, lack of a dependable checking account, and other reasons. While this criticism is to be expected, the regulations have also received skepticism from consumer advocates claiming that the rules are not expansive enough.

The Center for Responsible Lending points out that numerous loopholes will allow payday lenders to still trap borrowers in debt. Primarily, the full-payment test is only required for individuals taking out more than $500. However, as demonstrated in a former Law Street piece, a loan with the average principal of $325, if renewed eight times (or over the course of four months) would cost the borrower $798–1.5 times the initial loan.

While the new CFPB rules mark an important step in limiting the predatory nature of payday loans, which rely primarily on poor and vulnerable people who lack the bargaining power to reject 400+ percent interest rates on loans, the rules are not without flaw. By setting too high of a threshold for certain rules, the CFPB allows a large portion of the payday loan business to continue unfazed.

Regulations need to provide protection for all borrowers who enter a loan agreement where the lender has coercive power. As it currently stands, the CFPB’s rules are not expansive enough to make a real dent, and they fail to propose an alternative to payday loans, which are the only option for many customers.

Ashlee Smith

Ashlee Smith is a Law Street Intern from San Antonio, TX. She is a sophomore at American University, pursuing a Bachelor of Arts in Political Science and Journalism. Her passions include social policy, coffee, and watching West Wing. Contact Ashlee at ASmith@LawStreetMedia.com.

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The cloud can be scary, especially when its responsible for things like celebrity nude leaks. Or think of the movie “Sex Tape,” where Justin Segal and Cameron Diaz’s sex tape gets “lost in the cloud.”  So when toy manufacturer Mattel announced it would be releasing a new high-tech talking Barbie that uploads recordings of kids to the cloud, people freaked, with one consumer advocacy group deciding they want to box up this Barbie before she even has a chance to hit shelves.

#HelloBarbie goodbye privacy. Take action! http://t.co/w41UBXccAN pic.twitter.com/xFStefORhB

— CCFC (@commercialfree) March 11, 2015

Mattel’s “Hello Barbie” is a doll connected to Wi-Fi that uses a microphone embedded in Barbie’s belt buckle to record children’s voices and transmit them to cloud servers where they will be stored for up to two years. They can be analyzed and used to help form Hello Barbie’s responses. Priced at $74.99, the doll is pre-programmed by Mattel’s partner ToyTalk with responses to key words or phrases, so kids feel like the doll is actually responding to them.

What’s concerning is what may happen to all of these private conversations recorded between children and their dolls stored on the cloud servers. Do children have a right to keep their conversations with these dolls private? Campaign for Commercial-Free Childhood, an organization devoted solely to stopping the commercial exploitation of children, says yes. It posted a petition on its site calling the dolls “creepy” and requesting consumers “say goodbye” to Hello Barbie.

Susan Linn executive director of the group, in a phone interview told USA Today:

This is really about Mattel eavesdropping on a child’s heart and soul — and the most intimate things about their lives.

The real problem, says Linn, is that Mattel will now have the ability to ‘listen in’ on kids at play. ‘It’s corporate surveillance in the home and exploitation where kids are most vulnerable — around creative play.

Mattel officials say the company is simply doing what kids have asked it to do for years–making it possible to talk with Barbie. In order to do so, parents must first give permission for their child’s voice to be captured. By requiring the parental consent, Mattel hopes to fend of any liability issues its recordings may create. In an emailed statement to USA Today Stephanie Cota, Mattel’s senior vice president of global communications, said safeguards are already in place to protect the stored data from unauthorized users. Cota said:

Mattel is committed to safety and security, and Hello Barbie conforms to applicable government standards, including the Children’s Online Privacy Protection Act.

Even so have these toy developers gone too far? Children are becoming tech savvy from a young age; some are playing on smartphones and tablets before they can even talk or walk. This high-tech talking “Hello Barbie” may be exactly what children asked for, but it’s cloud sharing capabilities are frankly kind of scary.

Alexis Evans

Alexis Evans is an Assistant Editor at Law Street and a Buckeye State native. She has a Bachelor’s Degree in Journalism and a minor in Business from Ohio University. Contact Alexis at aevans@LawStreetMedia.com.

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