Earned or Early Wage Advance (EWA) products offer workers access to their wages before payday, usually for a fee. While low-wage workers can benefit from EWA programs that are properly designed and regulated, they can instead be harmed when products are allowed into the marketplace without guardrails keeping their use and cost within reasonable bounds. States should regulate all EWA products as credit and require compliance with consumer protections that prevent predatory lending debt traps commonly associated with payday loans. Download to continue reading
Payday, car-title, and similar high-cost loans, typically with interest rates of 100% APR and higher, trap people in crippling long-term debt. CRL advocates for regulators to require lenders to verify borrowers can afford to repay a loan before that loan is issued. CRL also advocates for interest rate caps of no higher than 36% APR and for enforcement of current usury laws.
Filter Results
CRL policy counsel Monica Burks recommends Vermont lawmakers decline to codify an Earned Wage Advance business model that could risk enabling payday lending-like debt traps in a state with an 18% usury cap.
A report released in January of 2023 attempts to provide cover for the predatory practices of payday lenders, who charge average 400% annual interest on loans that routinely create a long-term cycle of debt that sends borrowers into deep financial insecurity. The Consumer Financial Protection Bureau (CFPB) found that 75% of payday lender fees are collected from borrowers with 10 or more loans per year, indicating the reliance of payday lenders on a business model of long-term debt. Eighteen states and D.C. have stopped this debt trap by implementing a rate cap of 36% or less, including fees...
Payday loans, high-cost small loans averaging $350 that usually must be repaid in a single payment after two weeks, are designed to create a long-term debt trap. A 36% annual interest rate cap on payday loans (inclusive of fees) most effectively stops the cycle of debt. Currently 18 states and the District of Columbia have enacted rate caps of 36% or less. Since 2005, no new state has authorized high-cost payday lenders. States can and must continue to enact strong protections, such as a rate cap of 36% annual interest or less, to stop the payday debt trap.
Previous research by the Center for Responsible Lending (CRL) has revealed the harms associated with high-cost installment loans, which are often marketed to subprime borrowers and have annual percentage rates of interest (APRs) in excess of 36%. This paper explores a different segment of the installment loan market: loans made by consumer finance companies with rates at or below 36% APR that have larger, longer terms and are often packed with fees for low-value, high-cost add-on products. The costs of these products are not included in the loans’ APRs. Using a sample of 67 collections cases...
In this letter, several financial services industry and consumer groups expressed support for legislation, introduced in the U.S. Senate, to close the industrial loan company (ILC) charter loophole, the “Close the Shadow Banking Loophole Act."
Over the past decade, the high-cost small-dollar loan market, once dominated by short-term balloon payment payday loans, has seen the rise of high-cost installment loans with longer terms. Payday loans are typically repaid in a lump-sum, usually due in 14-day periods. Installment loans tend to be larger in size and repaid in several installments, typically over a period of several months. Although they are repaid in installment terms, these loans share similar characteristics with other payday and car-title loans: a lack of underwriting; access to a borrower’s bank account or car as security...
The market for personal loans is massive and growing, yet the fintechs and other non-bank lenders who make such loans are not subject to regular oversight by the Consumer Financial Protection Bureau (CFPB), which has “created an unlevel playing field and a large risk to consumers,” write the Consumer Bankers Association (CBA) and the Center for Responsible Lending (CRL). The groups jointly filed a petition for the CFPB to develop a rule that would define larger participants in the market for personal loans so that sizable non-depository lenders would be subject to consistent CFPB supervision...
On July 8, the Center for Responsible Lending, California Reinvestment Coalition, Consumer Federation of California, National Consumer Law Center, Public Law Center, and UC Berkeley Center for Consumer Law & Economic Justice filed an amicus brief in Los Angeles County (California) Superior Court in Opportunity Financial v. Hewlett . Opportunity Financial v. Hewlett addresses the legality of Opportunity Financial’s “rent-a-bank” scheme, whereby OppFi makes loans in California in excess of the state’s rate caps by laundering those loans through an out-of-state bank that is exempt from state rate...
From the introduction to the comment : Accountable.US, Americans for Financial Reform, Center for Responsible Lending, Consumer Action, Consumer Federation of America, National Consumer Law Center (on behalf of its low income clients), Public Citizen, US PIRG and the Woodstock Institute submit these comments in connection with the Community Reinvestment Act (CRA) examination of Transportation Alliance Bank (dba TAB Bank). TAB Bank serves as a rent-a-bank, nominally originating predatory loans at rates up to 189% APR for Duvera Billing Services, dba EasyPay Finance, to help EasyPay evade state...