From Paul Leonard – CA Director, Center for Responsible Lending
Today, the Consumer Financial Protection Bureau (CFPB) announce proposed new guidelines to end the debt trap (abuses in payday, car title, and high-cost installment lending) held a field hearing on payday lending at the Richmond Convention Center, in Richmond, VA, to. As you know, CRL has been poised for this event as a significant step in reining in wealth-draining consumer loans. I’ve attached our same-day first cut summary and analysis of the proposals as well.
The press seized upon this announcement and CRL’s proactive media work yielded good coverage in: USA Today, Associated Press, Bloomberg, Huffington Post, NPR, LA Times, McClatchy, and International Business Times. This morning CRL President Mike Calhoun was quoted in Huffington Post that strict enforcement of the ability to repay provisions “will help millions of borrowers avoid dangerously high-cost payday and other abusive loans.” Calhoun and Wade Henderson, Leadership Conference on Civil & Human Rights Executive Director (and CRL Board Member) both gave testimony at today’s Richmond hearing.
Additionally, President Obama is scheduled to discuss payday lending this afternoon at Lawson State Community College in Birmingham, Alabama, underscoring the importance of stronger consumer protections and increased transparency. The practice is legal in Alabama where vulnerable citizens have been especially hard-hit by triple-digit interest loans. A strong national rule will negate all remaining state authorizations, rendering payday lending illegal in all fifty states.
This is just the first step towards national reform of high-cost payday and car title loans. The CFPB is submitting the proposal to a Small Business Review Panel, and then will release a proposal for public comment. Once the CFPB finalizes a rule, it is expected that lenders will challenge the rule in court. It is critical that anti-predatory lending advocates engage in a steady, sustained drumbeat to ensure enactment of a meaningful, effective final rule in light of strong industry opposition.
Today’s announcement contains hopeful signs that the CFPB is gaining ground in protecting consumers. Of particular note are:
- As CRL has urged, the proposal is broad in scope, covering short-term payday and car title loans, as well as longer-term, abusive installment loans where the lender has access to the borrower’s bank account or car title; and
- The CFPB starts with the inclusion of a strong ability to repay standard that requires lenders to review a borrower’s income and financial obligations before making the loan. CRL’s research on the debt trap has clearly shown that this approach is central to effective reform.
CRL does, however, have concerns regarding the proposal. One key concern is that it offers an alternative to the ability to repay assessment for short-term loans that would permit multiple rollovers, and a weak underwriting standard for longer-term loans that does not consider the borrower’s expenses. While limiting repeat short-term loans is an important backstop to address the debt trap, it has flaws as well. These loopholes in the proposal risk undermining the basic principle that lenders should underwrite a borrower’s ability to repay every loan and run the risk of setting the tone for debates at the state level as a federally- approved guideline.
We will continue to mobilize and speak out against the scourge of triple-digit interest rates for as long as it takes. Without effective and continued opposition, payday lenders and other predatory players will attempt to derail the rule and use its failure as an excuse to weaken other measures at both the state and national level. CRL will also delve deeply to analyze the potential impacts of this rule, while reiterating that improvements are needed as well.
Your investment in CRL’s work has helped advance this historic milestone. In 2014, we launched the Campaign to Stop the Debt Trap to generate a tough, comprehensive national rule, continuing more than a decade of policy and research attacking the payday business model while calling attention to the plight of troubled borrowers.
On behalf of CRL and millions of Americans we hope will benefit from regulatory reform, thank you for your steadfast support and for your commitment to ending predatory payday lending. We will keep you updated in the months ahead and welcome your thoughts. In the meantime, please contact me with questions or comments.
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CA Director, Center for Responsible Lending