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Hearing May Serve as Backdrop for New Payday Regulations

Wednesday, May 18, 2016
Michael Calhoun

Damning Report on Car Title Loans, New Figures on Consumer Fee Drain, Heighten Calls for Strong National Rule

Earlier today, the Consumer Financial Protection Bureau (CFPB) announced plans for a field hearing that may serve as the backdrop for unveiling a proposed national rule governing a range of abusive small-dollar lending practices. The announcement was made the same day the CFPB issued a report detailing the devastation wrought by one of these practices, car title lending, finding that one in five borrowers has their car seized due to inability to repay – and a day after the Center for Responsible Lending released new data that found payday and car title loans drain $8 billion from the pockets of American families every year.

In anticipation of an upcoming rule, the Center for Responsible Lending released a new analysis of what to look for in the proposal and President Mike Calhoun issued the following statement:

The numbers that came out this week are stark reminders of how important it is for the Consumer Financial Protection Bureau to not just issue a rule, but to get this rule right.

The Bureau's preliminary proposal, released last year, indicates that it is taking the right approach by focusing on an ability to repay requirement, but as is often the case with federal regulations, the devil will be in the details. To get it right, the CFPB must base its determination of whether a loan is affordable on whether a borrower has enough income, after the new loan payment, to meet basic needs like food, housing and transportation. And the rule must be air tight: We are talking about an industry as notorious as any for exploiting loopholes in laws aiming to rein them in, and wreaking true financial ruin on working families in the process.

This is especially important in light of lenders' growing shift from the two-week loan model to longer-term payday and car title loans that are potentially even more harmful. Without meaningful upfront underwriting and strong protections against loan flipping, lenders can trap borrowers in high-cost debt for years on end.

CFPB has engaged in a long and thorough process to research these industries and evaluate potential rulemaking approaches. Now more than ever they should put forth a strong rule that is free of loopholes and can stop the debt trap and provide a level playing field for lenders across the board.

For additional resources see the following:

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