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California Lawmakers, Attorney General Are Right To Call On CFPB For Stronger Payday Lending Rule

Tuesday, October 11, 2016
Graciela Aponte-Diaz

The Center for Responsible Lending (CRL) and California Reinvestment Coalition (CRC) lauded California members of the U.S. Senate, U.S. House of Representatives, California State Legislature, city and county officials, and California Attorney General Kamala Harris for sending official statements to the Consumer Financial Protection (CFPB) calling on the agency to strengthen its proposed rule on payday and car title lending.

The California lawmakers and attorney general highlighted that the proposed rule is a step in the right direction, but underscored that more needs to be done to ensure that borrowers are not trapped in a cycle of debt by these predatory loans. In California, payday lenders typically charge 366% APR on a $300, two-week loan. Furthermore, payday lenders and high cost lenders are offering loans of $2,500 and above at 100% APR. Consumers are especially vulnerable to this abusive practice as California does not have an interest rate cap.

"As elected representatives, we respectfully urge the Consumer Financial Protection Bureau to issue a strong federal payday lending rule that puts an end to the payday, car title, and high-cost installment loan debt trap nationwide" the legislators wrote. "These high-cost unaffordable loans are detrimental to any community, but have a disproportionate impact on our African American and Latino neighborhoods. In California, payday lenders are twice as likely to be located in communities of color than in white communities, even after accounting for income. The core principle of CFPB's proposal is the right approach—requiring lenders to ensure that a loan is affordable without having to re-borrow or default on other expenses. However, some of the details must be strengthened in order for this approach to truly work and protect Californians from predatory lenders."

"This rule will create the first nationwide regulatory floor for the payday lending industry, while maintaining the prerogative of states to further strengthen their consumer protection laws and regulations as they see fit." the attorney general wrote. "I strongly support the Bureau's proposal to require a meaningful "ability-to-repay" standard and to curb collection abuses, as well as its proposals for structural protections to help protect consumers from being trapped in long-term, unaffordable debt."

Payday lenders have heavily invested in efforts to ward off state laws and federal regulations that would protect consumers. Some members of the California State Legislature, including California Assemblyman Ian Calderon (District-57) have pushed to weaken regulations against payday and car title lenders by calling on the CFPB to go light on rules that prevent abusive financial practices.

"Payday and car title lending significantly harm borrowers and their families. They lead to financial consequences, such as bank penalty fees, loss of cars, and bankruptcy. It's discouraging to see that some members of the state legislature have aligned themselves with payday lenders instead of putting the interests of California families first." said CRL Director of California Policy Graciela Aponte-Diaz. "We commend the members and the attorney general for their leadership and standing up against the payday lending industry."

"For years, payday lenders have siphoned money out of the pockets of Californians who can least afford it," said CRC Director of Community Engagement Liana Molina. "We applaud our state elected officials for standing up for responsible lending and we join them in urging the CFPB to finalize a rule that will protect borrowers."

California state legislative members who signed the comment letter were: Senators Bob Wieckowski, Mark Leno, Senator Fran Pavley, Hannah-Beth Jackson, Mike McGuire, Benjamin Allen, and Carol Liu; and Assembly Members Mark Stone, Patty Lopez, Philip Ting, Susan Talamantes Eggman, and Susan Bonilla.

The following local policymakers also called for a stronger payday lending rule: Berkeley City Councilmember Jesse Arreguin, Menlo Park Mayor Rich Cline, Oakland Mayor Libby Schaff, San Jose Mayor Sam Liccardo, Roseville Mayor Carol Garcia, the Los Angeles County Board of Supervisors, San Mateo County Board of Supervisors President Warren Slocum, and Santa Clara County Supervisor Ken Yeager.

Additionally, U.S. Representative Maxine Waters led a group of more than 100 Congressional members in sending a comment letter to the CFPB Director calling for a stronger payday lending rule. The California Congressional delegation members who signed the comment were: Peter Aguilar, Karen Bass, Xavier Becerra, Ami Bera, Judy Chu, Mark J. DeSaulnier, Anna G. Eshoo, Sam Farr, John Garamendi, Janice Hahn, Mike Honda, Jared Huffman, Barbara Lee, Ted W. Lieu, Zoe Lofgren, Alan Lowenthal, Lucille Roybal-Allard, Linda T. Sánchez, Jackie Speier, Mark Takano, and Maxine Waters.  

Both U.S. Senators from California, Senators Dianne Feinstein and Barbara Boxer, have also signed on to a letter urging CFPB for a stronger rule.

CRL and CRC have consistently fought against abusive predatory lending practices across California. Recently, CRL and CRC sent comments to CFPB calling for the Bureau to end the payday lending debt trap and close off paths to evasion for predatory payday lenders. Read CRL's letter and CRC's letter.

As part of its rulemaking process, CFPB released its proposed rule on June 2, 2016, and has since received public comments from families, communities, and organizations. The final day for public comment was October 7, 2016. The CFPB is expected to make its final decision on the regulations in 2017.

For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Ricardo Quinto at ricardo.quinto@responsiblelending.org.