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CFPB Payday Lending Rule Will Protect Consumers, Disrupt Abusive Predatory Business Model

Thursday, October 5, 2017
Michael Calhoun

Rule is Key First Step to Stopping the Debt Trap

WASHINGTON, D.C. – Today, national consumer and civil rights advocates welcomed the Consumer Financial Protection Bureau’s (CFPB) new rule to limit short-term payday and car-title lenders’ ability to trap borrowers in an endless cycle of debt.

The payday lending rule will result in fewer families falling into financial ruin. At the heart of the rule is the common sense principle that lenders check a borrower’s ability to repay before lending money. While praising the CFPB for pushing to stop the debt trap, the coalition calls on the Bureau to build on this progress by quickly working to develop regulations to protect consumers from abusive long-term, high-cost loans. Also, strong state laws, such as rate caps, must continue to be defended and enacted. [Additional background at bottom of release]  

Consumer and civil rights organizations released the following statements:

"This new rule is a step toward stopping payday lenders from harming families who are struggling to make ends meet. It will disrupt the abusive predatory payday lending business model, which thrives on trapping financially distressed customers in a cycle of unaffordable loans,” said Mike Calhoun, President, Center for Responsible Lending. "Today's rule release was years in the making, and it wouldn't have been possible without the tireless effort of community and faith leaders, consumer and civil rights advocates, and countless people across the country who organized and worked hard to make their voices heard. We will continue to fight for safeguards that protect families from abusive long-term predatory loans and for state interest rate caps for all loans at reasonable levels of no more than 36 percent."  

"Payday lending is bad for many consumers, but like many predatory scams, it invariably ends up as a weapon against the disadvantaged communities that are least able to bear its terrible burden. It uses the lure of quick cash to trap struggling families in a cycle of debt and slowly drain them of what little money they have. President Trump and Congress should get on the side of civil rights advocates, the religious community, consumer organizations, and the public at large by supporting and strengthening the CFPB’s new rules on payday lending," said Vanita Gupta, president and CEO, The Leadership Conference on Civil and Human Rights. 

“Clearly more needs to be done to rein in these uniquely unscrupulous lenders, for example, states can push for interest rate caps to complement the CFPB’s rule and play an even greater role in ensuring consumers do not fall into debt traps. But today’s rule is a step in the right direction, but more can certainly be done to close loopholes and provide more robust oversight, given that a vast majority of Americans support oversight and rules that help protect consumers,” said Janet Murguía, President and CEO, UnidosUS.  

“With little accountability for their actions, payday lenders have long preyed upon communities of color and drained them of their hard-earned savings. This CFPB rule establishes a much-needed set of transparent responsibilities for lenders and basic rights and protections for borrowers. We will work to defend and strengthen this rule, so Americans face fewer burdens in establishing financial security," said Hilary O. Shelton, NAACP Washington Bureau Director and Senior Vice President for Policy and Advocacy.

Background

  • At the heart of the CFPB rule is the common sense principle that lenders check a borrower’s ability to repay before lending money. In a recent poll of likely voters, more than 70% of Republicans, Independents, and Democrats support this idea. This requirement ensures that loans are affordable, meaning a borrower can repay without reborrowing and without defaulting on other expenses.
  • Currently, the debt trap is the cornerstone of the payday lending business model – three quarters of all payday loan fees are from borrowers with more than ten loans in the course of a year. The ability-to-pay requirement is a straightforward way to prevent this vicious cycle of debt and support lenders with legitimate business models.
  • Payday lenders have anticipated possible crackdowns on their abusive practices and begun morphing their business plans toward other schemes in order to evade the law, such as offering predatory long-term loans. Despite important progress with today’s announcement, the struggle for financial fairness will continue.  

View additional information about the rule.

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