CFPB Resets Payday Loan Rule When Consumers Need More, Not Less Protection – YubaNet
Washington, DC July 7, 2020 – The Consumer Financial Protection Bureau (CFPB) held one this afternoon new final rule on payday loans and similar forms of credit, which makes the good CFPB Payday Rule 2017.
In particular, this new definitive rule reverses previous important but modest underwriting requirements that required lenders to demonstrate the borrower’s ability to repay the loan according to the lender’s terms. While the CFPB has advanced the implementation of another important safeguard, payment provisioning, the repayment capability standard is critical to protecting consumers from an endless, destructive debt cycle.
“The CFPB empowers predatory lenders at a time when it should be focused on its mission to protect consumers in the financial market,” said Rachel Weintraub, Legislative Director and General Counsel of the Consumer Federation of America. “Payday loans already disproportionately harm the financially weak. Giving the payday loan industry priority over American consumers and their families during a financial crisis is not only cruel, it misses its mission. ”
“At a time of unprecedented financial challenges, the CFPB has taken back much-needed but inadequate consumer protection, making it even easier for payday lenders to get Americans caught in a devastating debt cycle,” said Rachel Gittleman, financial services outreach manager with the Consumer Federation of America. “With the disproportionate settlement of storefronts in mostly black and Latin American neighborhoods, predatory payday lenders systematically target color communities, which further exacerbate the racial wealth gap.”
According to the Pew Charitable Trusts, black Americans are 105% more likely than other races and races to take out payday loans. According to a 2017 FDIC study, 17% of black households had no bank accounts and 30% had no bank details, which means they had a bank account but were still using alternative financial services like payday loans, as opposed to 3% and 14% respectively. of white households. . “Payday lenders hunt down underbanked and underbanked Americans by offering short-term loans designed to trap borrowers in a debilitating debt cycle,” said Gittleman.
The solvency provision would have required creditors offering payday loans and similar forms of credit to determine whether borrowers could afford loan payments in addition to other expenses. “The Repayment Standard was an important, humble step in ensuring Americans could afford to pay back the loan, along with sky-high interest rates imposed by payday lenders,” Gittleman continued.
Payday loans, which often have an annual interest rate of over 400%, trap consumers in a debt cycle. The CFPB itself found that the majority of short-term payday loan victims are typically trapped in at least 10 consecutive loans – paying far more fees than they received in loan form. In addition, an overwhelming majority of Americans, both Republicans and Democrats, support an interest rate cap of 36 percent. “Rather than side with the public, the CFPB has given payday lenders a terrible priority over American consumers,” Gittleman said
“In the absence of regulatory oversight, Congress must act to protect consumers from expensive loan programs,” said Weintraub. “Interest rates on high priced loans should be capped at 36% during the remainder of the COVID-19 emergency and its financial aftermath. After a temporary correction, Congress must adopt HR 5050 / S. 2833, the Veterans and Consumers Fair Credit Act, to permanently cap interest rates at 36% for all consumers, ”she concluded.
Susan K. Urahn et al, “Payday Lending in America: Who Borrows, Where They Borrow, and Why,” The Pew Charitable Trusts, July 2012. https://www.pewtrusts.org/~/media/legacy/uploadedfiles/pcs_assets/2012/pewpaydaylendingreportpdf.pdf.
The Consumers’ Association of America is an association of more than 250 consumer not-for-profit organizations founded in 1968 to promote consumer interest through research, advocacy and education.