Within days of the October 7 deadline for public comment on the Consumer Financial Protection Bureau’s proposed payday rule, 104 Members of Congress from 32 states, the District of Columbia and the Virgin Islands together called for strong consumer protections, and an end to both regulatory loopholes and predatory debt traps.
Joining the effort were 31 of the current 43 House Members of the Congressional Black Caucus, including its chair, Representative G. K. Butterfield from North Carolina. The Tar Heel State enacted strong laws years ago to end predatory payday loans. Additionally, many of these CBC members come from states that have failed to enact meaningful payday reform including Alabama, California, Michigan, Missouri, and Texas.
Led by California Congresswoman Maxine Waters, the Ranking Member of the House Financial Services Committee, their joint September 28 letter to CFPB Director Richard Cordray was as direct as it was timely.
“For years, some small-dollar lenders – offering products such as payday loans, deposit advances, vehicle title loans, and high-cost installment loans – have extracted billions of dollars in abusive fees and high interest rates from the very consumers and communities who can afford it the least,” wrote the Representatives. “The result has left millions of consumers trapped in an endless cycle of debt . . . The CFPB’s final rule must close every loophole that is shown to harm consumers.”
Citing earlier CFPB research on other small dollar loans like car-title, the Congress members noted that 14 states and the District of Columbia have already enacted interest rate caps of 36 percent. In their collective view, federal regulation should complement these state protections.
“Though we applaud the CFPB for taking the necessary first steps to address predatory practices in the small-dollar credit market,” wrote the Members, “we urge you to adopt a final rule with additional protections that will ensure responsible lending. Only a comprehensive federal framework, free of harmful loopholes, can supplement existing state protections and help stop consumers from becoming entrapped.”
This strong Congressional appeal continues the calls for fair lending that has included clergy, consumer advocates, civil rights organizations and others.
For example in late September, Rev. Dr. Cassandra Gould, executive director of Missouri Faith Voices spoke to a September 27 nationwide call with concerned clergy and consumer advocates. “We have to pull the veil off unscrupulous lenders so they stop preying on people in our congregations and communities to make sure the Consumer Financial Protection Bureau puts forward and enforces a strong and effective rule,” said Rev. Dr. Gould.
Also present at the gathering was Senator Elizabeth Warren of Massachusetts, who encouraged the White House in the aftermath of the housing crisis to create a financial regulator for America’s consumers.
“Payday lending is an enormous problem for far too many people,” said Sen. Warren. “Billions of dollars are flowing out of communities that can least afford it and directly into the pockets of some of the sleaziest lenders in America.”
For several years, payday lending reforms have been a prominent part of the research and advocacy by the Center for Responsible Lending. Among CRL’s key payday loan findings:
§ Each year, $4 billion in excessive fees are drained from the pockets of payday borrowers;
§ Over 75 percent of these fees are generated by consumers who are trapped into debt with 10 or more loans per year; and
§ Nearly 1 in 4 payday borrowers rely upon public assistance or retirement benefits as a major source of income.
“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,” said Mike Calhoun, CRL President. “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.
“Without meaningful upfront underwriting and strong protections against loan flipping, lenders can trap borrowers in high-cost debt for years on end,” Calhoun concluded.