CFPB’s revised payday loan rule will enable predatory lenders to push consumers into high-interest debt traps
WASHINGTON, DC – The Consumer Financial Protection Bureau’s revised rule issued today governing payday, auto title, and short-term installment loans falls far short of what consumers need to avoid getting trapped in high-interest debt, according to Consumer Reports. The new rule rescinds protections adopted by the CFPB in 2017 that would have required lenders to ensure borrowers had the ability to pay off their debts without reborrowing, or at least maintain cooling off periods between loans.
“The CFPB has turned its back on consumers by failing to address well-documented payday loan abuses that shackle borrowers in triple-digit debt,” said Suzanne Martindale, senior policy counsel and western states legislative director for Consumer Reports. “Under the rule issued today, short term lenders will remain free to trap vulnerable consumers into high interest debt that they stand little chance of paying off without reborrowing again and again. This move is particularly troubling in light of the escalating financial crisis so many Americans are now facing due to the COVID-19 pandemic.”
Martindale continued, “Research shows that predatory lenders are heavily concentrated in Black and brown neighborhoods, the same communities disproportionately reeling from the financial impacts of the coronavirus crisis. Now these communities are bearing the burden, once again, of insufficient consumer protection at a time when they need it most.”
The CFPB’s original underwriting provisions for payday and other short-term installment loans first issued in 2017 were carefully developed after five years of research, market monitoring, input from small businesses, consumer complaint handling, and over one million public comments. The CFPB’s revised rule rescinds these safeguards and ignores the troves of research and data that demonstrate that high-cost short-term lenders routinely put consumers into debts they cannot afford, resulting in severe financial harms.
The CFPB’s previous research uncovered high levels of repeat borrowing. Four out of every five payday loan borrowers – or 80 percent – have to reborrow from the same lender within 14 days, and almost 90 percent end up reborrowing within 60 days. More likely than not, a person with a loan will end up taking out ten loans in a sequence.
Short-term auto-title loans are equally troubling, and come with the added risk of losing one’s car. The CFPB’s research found that approximately one in every five people who takes out an auto-title loan with a balloon payment ends up losing their car to repossession.
Michael McCauley, michael.mccauley@consumer.org, 415-902-9537