Welcome to Consumer Reports Advocacy

For 85 years CR has worked for laws and policies that put consumers first. Learn more about CR’s work with policymakers, companies, and consumers to help build a fair and just marketplace at TrustCR.org

Consumers Union urges CFPB to implement payday loan rule without delay

CFPB announces it is reconsidering rule requiring sensible underwriting and limits on repeat borrowing

WASHINGTON, D.C. –  Consumers Union, the policy and mobilization division of Consumer Reports, urged the Consumer Financial Protection Bureau (CFPB) today to implement without delay its recently adopted rule protecting consumers who take out high-cost payday, installment and auto title loans.  The CFPB has indicated that it plans to reconsider the rule which is supposed to be fully implemented by mid-2019.

“High-cost payday loans turn out to be debt traps for far too many borrowers who find them impossible to pay off when the bill comes due,” said Suzanne Martindale, senior attorney for Consumers Union.  “The CFPB’s new rule is long overdue and requires sensible underwriting and limits on predatory practices to help ensure consumers can repay their loans.  The CFPB spent years studying the payday loan and auto title markets and gathering public input on this issue.  There is simply no justification for delaying these reasonable consumer safeguards any further.”

The CFPB’s rule targets the most abusive short-term lending practices to protect consumers, while paving the way for more responsible lenders to emerge with safer alternatives.  Under the new rule, lenders will generally be required to make sure borrowers can pay back short-term loans and will face restrictions on pushing consumers into back-to-back loans to pay off old debts.  Lenders will also be prevented from repeatedly debiting consumers’ bank accounts without permission, which can trigger costly overdraft fees.

A CFPB review found that a typical payday loan of $350 carried a median fee of $15 per $100 borrowed and would come due after two weeks, which translates into a 391 percent APR.  The CFPB found that many borrowers repeatedly roll over their payday loans or take out additional loans because they are unable to pay off the loan at the end of the two week term.  Nearly half of payday loan borrowers have more than 10 transactions a year (14 percent had 20 or more transactions a year).  Most borrowers who take out a new payday loan do so on the same day the old loan is closed or soon thereafter.

Similarly, consumers who take out auto title loans are often unable to pay them off when they become due and are forced to re-borrow and pay more fees.  A CFPB analysis of auto title loans between 2010 and 2013 found that 80 percent of borrowers signed up for another title loan on the same day their previous loan was repaid.   More than two-thirds of all auto title loan business comes from borrowers who take out seven or more consecutive loans during the course of a year.  One in every five borrowers eventually loses their car due to repossession.