WASHINGTON–Consumer groups have reacted with strong criticism following an announcement by the CFPB that it is changing direction on rulemaking around payday and auto title loans.
As CUToday.info reported here, the Bureau appears to be dialing back its proposals to tighten rules around payday, vehicle title and other high-cost installment loans, otherwise known as its “Payday Rule.”
In October of 2017, the CFPB finalized a rule on Payday, Vehicle Title, and Certain High-Cost Installment Loans that required creditors offering payday loans and some similar forms of credit to determine whether borrowers can afford loan payments while still meeting basic living expenses and major financial obligations. Payday lenders were required to comply with these protections by August 19, 2019. The rule had been several years in the making.
The Consumer Federation of America is among those critical of the agency’s decision.
“While not perfect, the CFPB’s final payday lending rule was a strong step toward helping struggling families avoid debt traps” said Christopher Peterson, senior fellow at the CFA and the John J Flynn Endowed Professor of Law at the University of Utah. “The CFPB’s regulation would have required that payday lenders consider whether loan applicants can afford their loan before extending credit that can spiral out of control. President Trump came into office promising to remember the forgotten people that are struggling throughout middle America. Instead, the Administration has taken the side of predatory payday lenders that collect triple-digit interest debts from our most vulnerable families.”
Peterson said a “super-majority” of Americans, both Republicans and Democrats support the traditional interest rate limit of no more than 36%.
“Instead, of siding with the public, or even the CFPB’s compromise regulation, President Trump is working hand-in-hand with the usurious money changers that cause so much suffering,” said Peterson. “Payday loans have average interest rates of about 400%. By way of comparison, New York City criminal loan sharking syndicates charged average interest rates of 250% at the height of their power in the 1960s. The CFPB itself found that the majority of short-term payday loans are borrowed by consumers who take out a least 10 loans in a row, with the borrower paying far more in fees than they received in credit. The CFPB was supposed to protect consumers. Unfortunately, the agency now appears to be taking steps to protect payday lenders instead.”