By: Charlene Crowell
For most people, life is better when there is something to look forward to. Whether it’s looking forward to graduation, the arrival of a new baby, or a retirement that allows you to enjoy life for a few years, these kinds of things make tough times easier to cope with. to manage.
For payday loan borrowers and consumer and civil rights activists, August 19 was meant to be the end of the almost inevitable payday loan debt trap. Consumers would no longer take out seemingly endless rounds of loans that lenders knew they couldn’t afford. Lenders would also not have unlimited and automatic direct access to borrowers’ current accounts; only two debits could be drawn from an insufficiently funded account. The days when unrestricted businesses recklessly sold payday loans and auto loans as short-term financial solutions that turned into long-term debt were about to be closed.
Let’s say these borrowers eagerly awaited financial freedom from the never-ending cycle of loan renewals and expensive fees generated by triple-digit interest rates. In practical terms, the typical two-week $ 350 payday loan costs $ 458 in fees.
But just as seasons and circumstances can and do change, under a different administration, the Consumer Financial Protection Bureau (CFPB) has functioned more recently to help predatory lenders than to fulfill its legal mission of protecting consumers.
Last summer Mick Mulvaney, then director of CFPB, joined the payday loan industry to challenge and win a delay in implementing the long-awaited payday rule. Mulvaney also withdrew a lawsuit filed by the CFPB against a payday lender before his arrival.
Months later, in West Texas federal court, U.S. District Judge Lee Yeakel granted a “stay,” the legal term for a court-ordered delay, to allow the current CFPB director to rewrite the rule adopted under the first director of the Bureau. Even earlier and under CFPB interim director Mick Mulvaney, a CFPB lawsuit against a payday lender was withdrawn.
In response to these and other anti-consumer developments, consumer advocates chose to observe the August 19 date in a different way: by reminding the CFPB of what it was supposed to do on behalf of consumers.
“[S]Since its change of leadership in 2017, the CFPB has repeatedly failed to support the agency’s August 19, 2019 compliance date set for these important provisions, ”wrote Americans for Financial Reform Education Fund, National Consumer Law Center, Public Citizen and Center for Responsible. Loan (CRL). The August 12 joint letter to Director Kraninger called for a “swift implementation” of the rule’s payment protections. While the CFPB continues to push for a suspension of the rule’s repayment capacity requirements, it has offered no basis for its anti-consumer efforts.
It took years of public hearings, research, public comment and a careful rule-making process before Director Cordray established a rule that would bring financial relief to one of the most predatory loans. most odious of the country.
Similar sentiments were expressed to the CFPB by 25 state attorneys general whose jurisdictions included California, Illinois, Maryland, Michigan, New York, North Carolina, Oregon, Virginia, and the District of Columbia. . In comments written on the CFPB’s plan to rewrite the payday rule, these state officials also expressed serious problems with the Bureau’s anti-consumer turn.
“The Bureau’s proposed repeal of the 2017 rule would remove a significant federal floor that would protect consumers across the country, including against interstate lending activity that is difficult for any individual state to control,” said writes the AG. “Extending credit without a reasonable assessment of borrowers’ ability to repay their loans sounds like the bad underwriting practices that fueled the subprime mortgage crisis, which ultimately led to an economic downturn and the enactment of the Dodd Law. -Frank. “
A 2019 CRL research report found that every year, payday and auto title loans drain nearly $ 8 billion in fees from consumers’ pockets. Although 16 states and the District of Columbia have adopted rate caps that limit interest to a maximum of 36%, 34 states still allow triple-digit interest rate payday loans that together generate more than $ 4 billion in interest. costly fees. Likewise, auto title loans drain over $ 3.8 billion in fees each year from consumers in the 22 states where this type of loan is legal.
Texas leads the country in costly payday loan fees at $ 1.2 billion per year. Overall, consumers stuck in more than 10 payday loans per year account for 75% of all fees charged.
Car title loan fees take $ 356 million out of the pockets of Alabama residents and $ 297 million from Mississippi consumers. And among all the borrowers of these loans, one in five loses their vehicle in the event of repossession.
This spring, ahead of a Capitol Hill hearing, Diane Standaert, executive vice president of CRL and director of state policy, summed up the choices the nation now faces: predatory lenders charging interest rates by 300%. “
As Spike Lee advised years ago, “Do the right thing.”
Charlene Crowell is the Assistant Director of Communications for the Center for Responsible Lending. She can be reached at [email protected].