Two Years After It Finalized Rules to Curb Predatory Lending, the CFPB Now Wants to Roll Them Back
Editor's note: Join us on social media to #StopTheDebtTrap and #PutConsumersFirst using our social media toolkit! Also, call or email your Member of Congress today!
Today, under the leadership of newly-confirmed Director Kathy Kraninger, the Consumer Financial Protection Bureau (CFPB) released a proposed rule that seeks to fundamentally weaken the first-ever national consumer protections against predatory payday lending. They have also delayed the implementation of the core elements of these landmark protections by 15 months, from August 2019 to November 2020.
Although today’s action was put in motion prior to Director Kraninger’s tenure, the decision to do away with core elements of her own agency’s barely two-year old landmark rule—namely its ability-to-repay standard and limits on reborrowing—will leave countless low-income and moderate-income consumers unnecessarily vulnerable to the whims of predatory payday lenders.
At the same time, given the fact that lending discrimination and predation greatly impacts communities of color, today’s decision will certainly hit household of color hard, stripping what little wealth these communities have and fueling the racial wealth gap.
Moreover, in making these unwarranted changes to an already strong rule, the CFPB is seeking to dismiss consumer safety in favor of propping up a predatory business model founded primarily on two things:
- Extending triple-digit interest rate loans to borrowers without considering their ability to pay them back
- Repeat borrowing from consumers who cannot pay their loans back in time, forcing them into a protracted and costly debt trap
Over the course of a year, this lending model puts the average payday customer in debt for five months out of the year, when they pay close to $900 for what was originally a $375 loan.
Given the well-earned reputation of the payday industry to engage in risky, often predatory lending practices that are extremely harmful to consumers, it’s no surprise that after five years of research and public deliberations—including a review of over a million public comments—the CFPB anchored its 2017 rule on the following two principles:
- Preventing lenders from offering unaffordable, short-term credit by requiring them to first assess a borrower’s ability-repay
- Helping borrowers pay down their loans without falling further into debt by limiting the number of loans that can be extended to them over the course of a year
While the final version of the CFPB’s 2017 payday lending rule does not contain everything we recommend, the decision to embrace a national ability-to-repay-standard for payday lenders—the gold standard for underwriting that is conspicuously absent in this lending industry—as well as rollover protections would have gone a long way to ending some of the most harmful practices within the payday industry.
Ultimately, with today’s announcement, rather than working to #PutConsumersFirst, the CFPB is now conceding to the payday industry. But that doesn’t mean our work to stop the debt trap at the federal level ends here. Our commitment to protect consumers is stronger than ever.
Here’s What You Can Do to Fight Back and #PutConsumersFirst
Although it’s only been two years since we last won the fight to protect consumers from the myriad of predatory practices that plague the payday lending industry, a lot has changed since that time. But the tactics that led us to victory then—rallying together, speaking up for consumers, calling Congress, putting pressure on the CFPB—have remained the same.
That’s why today we’re announcing the start of the #PutConsumersFirst campaign! #PutConsumersFirst aims to unify a consumer-focused voice to fight back against the payday industry lobby, which has spent and will continue to spend millions to combat consumer protection.
Our first course of action is to call or email Congress right now and ask elected officials to hold the CFPB accountable for putting consumers above predatory lenders. While this may not be a legislative priority for Congress at the moment, it’s critical that your senators and representative hear from constituents and advocates like you about the harm caused by payday lenders and the importance of the CFPB’s original 2017 rule.
To further amplify the voices of consumers and consumer advocates, over the next weeks and months we’ll share resources you can use to respond to the Bureau’s new proposed rule, including template comment letters you can submit to the agency and opportunities to sign-on to Prosperity Now’s national comment letter. If you’re already signed up for our Consumer Protections campaign, please keep your eye out for important updates and actions to push back on any attempts to undermine this very important rule. And if you haven’t, you can sign up by clicking here.
While we know that this fight will be an uphill battle, we also know that we can’t win without your advocacy. Please join us in the fight to end the payday debt trap once and for all.