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Consumer Watchdog Must Protect Against Long-Term Payday Loans

Thursday, April 14, 2016
Diane Standaert

Center for Responsible Lending, and Groups Nationwide Tell CFPB: Beware Same Old Predators in Different Clothing

The Consumer Financial Protection Bureau’s efforts to rein in the worst abuses of traditional, two-week payday lending schemes must not leave the door open to longer-term loan products that are similarly predatory debt-traps by design, nearly 150 consumer advocacy and civil rights groups representing thousands of Americans in more than 45 states told Consumer Financial Protection Bureau Director Richard Cordray in a hand-delivered letter.

At issue is a new rule the CFPB is expected to issue this Spring that if done right will end the worst abuses of payday, car title and other forms of high-cost, low-dollar lending. The rule has been in the works for more than a year and the payday lending industry has taken note and begun to push new products designed to help them duck impending regulation.

"What we are saying here is that these long-term loans pushed by payday and car title lenders carry the same abusive features that we’ve always been concerned about and action must be taken so that more people cannot be harmed, period," said Diane Standaert, the Center for Responsible Lending’s director of state policy. "We should not make the mistake of writing a rule that we know, before the ink is dry, will be obsolete in terms of its ability to protect consumers from predatory lending."

"We are concerned about the migration of payday and car title lenders to long-term loans that keep borrowers trapped in prolonged unaffordable debt. This migration is already well underway in the states where long-term, high-rate loans are permitted, and lenders are already aggressively seeking authorization of these loans in states where it is not," the letter reads.

To address all of the concerns with long-term payday loans, "it is critical that the CFPB require every lender to design, underwrite and service its loans to ensure that the great majority of borrowers can repay the loans, on their original terms, without reborrowing while meeting other expenses," the letter says.

View the entire text and a list of signers.

Hallmarks of predatory long-term payday and car title loans include:

  • Repeat refinancing: Refinancing a high-cost loan is an extremely strong indicator that the borrower has been unable to repay the loan on its original terms without re-borrowing. In New Mexico, for example, 68 percent of long-term car title loans (averaging 222 percent APR) were refinanced, renewed, or extended.
  • Cash-grab for the lenders: In all of these long-term loans, just as in payday loans, lenders can reach into borrowers’ bank accounts and grab their monthly payments.
  • Little or no pay-down of principle: These loans are designed to extract substantial payments from borrowers for an extended period of time with little progress in repaying the loan

For more information, or to arrange an interview with a CRL expert, please contact Charlene Crowell at Charlene.Crowell@responsiblelending.org or 919-313-8523.