CRL in the News
The U.S. House is expected to vote Thursday on the so-called Financial CHOICE Act, a bill that would eliminate consumer protections and destroy safeguards in place to avert financial crises like the one California just survived. The bill should be called the “Wrong Choice Act,” because it will turn back the clock to 2007, when toxic and manipulative financial products brought down the entire economy.
The CHOICE Act would eliminate the CFPB’s power to regulate “small-dollar credit,” including “payday loans, vehicle title loans, or other similar loans” with extremely high interest rates that are used by more than 19 million mostly lower income US households to make ends meet when they’re lacking other options. Given the interest, these loans can lead to a cycle of ever-growing debt—the majority of borrowers end up having to take out a second loan to cover the first.
“The Center for Responsible Lending believes that addressing predatory lending practices requires effective regulation, enforcement and strategies to make consumers aware of how to combat abuses,” said Chris Kukla, Executive Vice President with the Center for Responsible Lending. “DCA’s announcement today, as part of an overall effort to make the car buying market safer for New York City consumers, is another helpful step in the right direction.”
The proposal “would hurt rural and working families across the country,” said Michael Calhoun, president of the Center for Responsible Lending. He said Stegman’s proposal in effect abandons the affordable housing goals and waters down the companies’ duty to serve all markets. One problem not addressed in Stegman’s plan, Calhoun said, is how to prevent new housing-finance models from charging more to less-well-off borrowers than to rich borrowers.
As also noted by House Republicans, the CFPB has used that jurisdiction to propose a federal regulation on payday, vehicle title and certain other high-cost installment loans. But the sentence on page 403 of the Financial Choice Act could change that. As Diane Standaert, director of state policy for the nonprofit Center for Responsible Lending, tellsConsumerist, "It's a shocking provision. Payday lenders charge triple-digit interest rates, and Congress is proposing to give them a free pass.”
With that one line, Republican lawmakers have declared their willingness to allow people facing financial difficulties to be at the mercy of predatory lending practices that typically involve annual interest rates approaching 400%. "They’re trying to sneak in that provision,” Diane Standaert, executive vice president of the Center for Responsible Lending, told me. “It seems like they hoped no one would notice.”
If you decide to trade in your car, be aware that this doesn’t eliminate negative equity — it rolls it into the monthly payment on your new loan. This means you could end up taking on even more debt. “What’s more likely is you’re going to end up just constantly rolling over negative equity,” says Chris Kukla, executive vice president of the Center for Responsible Lending.
The financial services industry has responded by creating STSDC products that provide quick and easy liquidity injections for cash-strapped borrowers. These products have become a de facto liquidity support system for families dealing with the consequences of income disparity and volatility. While STSDC products satisfy urgent short-term needs, they carry a high price.
For analysts focused on financial inclusion, the SoFi Wealth product may be a step in the right direction, but a long way from giving underserved populations a needed leg up. "Even $500 is hard for low-income customers, these people are borrowing $200 to make ends meet — but it’s better than a $10,000 [minimum]” said Ashley Harrington, counsel at the Center for Responsible Lending. What’s more likely, Harrington added, is that the availability of the product could benefit borrowers of color who have access to more capital.
Our primary concerns are ensuring that the system provides for access and affordability for all creditworthy borrowers. Right now creditworthy borrowers are being locked out of the system and being underserved. When we look at recent HMDA [Home Mortgage Disclosure Act] data — specifically the 2015 data — we are concerned to see low levels of conventional lending to borrowers of color and to lower-wealth families overall.