KANSAS CITY, Mo.– All eyes will be on a CFPB field hearing here today when the agency will formally announce its new rules for small dollar loans and payday lending.
Credit unions have been actively lobbying the CFPB to exclude them from any proposal, arguing the payday and small-dollar loans offered by credit unions are in consumers’ best interests and that they have not been among the “bad actors” that have led to a need for regulations.
The Consumer Federation of America’s director of financial services, Tom Feltner, issued a statement that “We look forward to a strong rule that will protect consumers from the well-documented abuses of an industry that has made every attempt to evade meaningful oversight. We believe that a strong rule will apply to payday and car title loans regardless of the length of the loan and ensure that lenders are only making loans that the borrower can afford based on their income and expenses. A strong rule should also protect borrowers’ bank accounts from high and unpredictable overdraft fees that compound the cost and harm of interest rates that average 391%. A rule that includes these provisions, without loopholes, represents the best chance that consumers have in obtaining relief from harmful debt products.”
The Pew Charitable Trusts, meanwhile, said its small-dollar loans project has identified two primary determinants of success for the rule, as follows:
- Stop harmful payday loan practices: Eliminate the lump-sum payment loan which currently requires borrowers to pay back the full loan plus a fee on their next payday. This practice keeps borrowers in debt an average of five months of the year, re-borrowing the same loan to pay an average of $520 in fees to receive $375 in credit.
- Set clear product safety standards to pave the way for lower-cost providers to offer better loans: The two primary factors are affordable payments and a reasonable amount of time to repay. Banks and credit unions have spoken in favor of inclusion of the 5% payment standard from the CFPB’s proposal framework in March 2015 (limiting monthly payments to 5% of the borrower’s income) to be able to offer loans at six times lower prices than payday lenders.
The field hearing begins at 11 a.m. ET. CUToday.info will have complete coverage.