AFR Statement: CFPB Payday Proposal Gets Two Crucial Things Right While Leaving Dangerous Exceptions

The Consumer Financial Protection Bureau today released a first look at elements of its long-awaited proposal to regulate payday and other small-dollar consumer loans. The path the Bureau is moving on gets two fundamental things right. First, for a loan to be fair, the borrower must have the ability to repay.

In the current market, as Director Richard Cordray said in remarks prepared for a CFPB hearing in Richmond, Virginia, the decision to issue these ultra-high-cost loans (with interest rates of 300% and more) is far too often based only on “the lender’s ability to collect,” using methods (postdated checks, automatic debits, vehicle seizures, and repeat loans triggering additional fees) that dig people deeper into debt. Payday, car-title, and other abusive, triple-digit-interest loans have driven millions of American workers and families over an economic cliff.

Second, the Bureau has recognized that this crucial principle – ability-to-repay – must apply to a sufficiently broad range of small-dollar loans, and not just to a narrowly defined set of payday or car- title loans. Otherwise, abusive lenders will do what they have done in many of the states that have tried to crack down on such abuses: find ways to evade the rules without giving up their basic debt-trap approach.

At the same time, however, we are very concerned that parts of the CFPB’s proposal provide dangerous exceptions to a meaningful application of the ability-to-repay principal to both short- and longer-term small dollar loans. These exceptions would invite continuing abuse, while putting state protections at risk and undermining the push to end the debt-trap business model.

At the hearing, AFR delivered a letter in which a remarkable array of civil rights, faith, economic justice, elder, community and civic organizations – 500 altogether, including groups from all 50 states – applaud the CFPB for its commitment to this issue and urge it to develop and implement regulations that finally put payday, car-title and other small-dollar lenders “on the same footing as other lenders, requiring them to play by the rules and make fair loans.”

We look forward to working with the Bureau to complete its rulemaking process and achieve this essential goal.


Statements by Allied Organizations:

Remarks and Testimony at March 26 Hearing in Richmond:

Statements by Members of Congress

Statements by Allied Lenders