Keystone Research Center was among more than 75 organizations in 14 states and the District of Columbia that signed a letter sent earlier this month to Consumer Financial Protection Bureau Director Richard Cordray. The letter calls on that federal agency to issue strong rules on payday lending that (1) expand states’ existing protections; (2) enforce tougher state regulations to protect consumers from financial abuse; and (3) “put an end to the payday lending scourge once and for all.”
Payday loans are short-term loans with an average interest rate of 400 percent that borrowers usually can’t pay off without taking out additional loans and paying new fees. CFPB is in the process of crafting the first-ever federal payday lending rules which would govern payday lending nationally.
All the signatory organizations – which include faith, civil rights, credit counseling, military, veterans, housing, labor, legal, community and other groups -- are in states, including Pennsylvania, where payday lending is not allowed.
The letter was prompted by concern that CFPB’s draft rule, unveiled in March, would allow lenders to continue making payday loans that are harmful and abusive to consumers. The letter stated that “a weak CFPB rule will directly jeopardize our states’ … consumer protection laws.”
The payday lending industry already is using this draft rule to lobby against strong state protections. The industry has supported several bills over the years to introduce payday lending into Pennsylvania. Each time, KRC and other consumer advocates have successfully fought to maintain the ban.
CFPB’s draft rule would require payday lenders to determine in advance whether borrowers’ income and expenses would reasonably allow them to pay off the loan when it comes due. That’s good. But the draft rule contains a huge loophole that would exempt the consumer’s first six loans from that “affordability standard.” Six loans at 400 percent interest to a financially vulnerable consumer quickly adds up to a lot of rapidly multiplying and unmanageable debt.
The letter KRC signed states that “from our perspective, this approach runs counter to sound public policy-making, as well as the CFPB’s mandate of stopping unfair and abusive lending practices.” So KRC and the other signing organizations are urging the CFPB “to issue final rules that build on, rather than undermine, strong state protections and that enhance our ability to enforce them.” That’s something we believe CFPB owes the consumer.