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As comment period closes Friday on payday lending rule, agency flooded with demands to make it stronger, smarter
WASHINGTON – More than 400,000 comments asking for a rule on payday lending to be stronger and smarter have flooded in to the Consumer Financial Protection Bureau (CFPB) since a draft proposal on the rule was unveiled in June, consumer advocates announced Wednesday.
The comments were gathered as part of a nationwide effort to ensure the voices of borrowers were heard over the din created by payday lenders who have reportedly used coercive and dishonest tactics to weaken the rule. The comment period ends Friday.
On a press call today, People’s Action Institute and Americans for Financial Reform released Caught in the Debt Trap, a heart wrenching report that tells the real story about what business as usual means to thousands of borrowers around the country and called on the CFPB to ensure the final rule is strong enough to make a real difference.
“The industry wants you to believe that people are happy with their payday loans. The stories we’re hearing from around the country tell a far different story,” said Liz Ryan Murray, policy director for People’s Action Institute. “We hear from people after the smooth sales pitch goes away – when debt mounts and mounts and the threatening phone calls come in. That’s the real story of payday lending.”
At the heart of the rule is the idea that loans should be affordable – meaning that borrowers should be able to pay off the loan and still afford basic necessities without having to take out another loan while paying on the first.. While this is the right idea, the rule as written contains too many loopholes for the affordability standard to be meaningful.
The powerful stories of Caught in the Debt Trap, reminds us, payday lending can exact terrible costs in multiple aspects of people’s lives, said Gynnie Robnett, payday campaign director for Americans for Financial Reform.
“The debt trap experience is the reason 400,000 comments have been submitted to the CFPB urging strong rules against payday abuses. We look forward at the end of this process to seeing a rule that will prevent people from being lured and trapped in financial quicksand,” said Robnett.
On the call, Senator Jeff Merkley (D-Oregon) told the story of how payday lenders tried to stop the efforts he led in the Oregon Legislature to rein in abusive and predatory practices. There were literally sacks of mail delivered to his home at the time, with letters from payday borrowers who claimed to be happy with the product. So the Senator called the letter writers – and he learned that they were pressured to write these letters when they went to take out a loan. He also learned that, to a person, not one of them opposed reforms to the industry. “I’d like to add my voice to all those consumers who have written to the CFPB in support of the payday rule. I have seen the destructive nature of this industry and I know that there is no good that can come out of allowing this industry to proceed in its current fashion. Payday lending destroys families, has a terrible impact on communities, and we need to end it,” Merkley said.
Harold Carnes, a borrower from Nevada, who is featured in Caught in the Debt Trap, told of how he went to a payday lender after his hours were cut at McDonald’s and he was concerned about keeping his family in their home. But instead of helping him, the payday loan became a nightmare. “It doesn’t make any sense, this happening to us in America. We work hard, we do the best we can but there are more payday loan companies than McDonald’s. CFPB has to pass rules to help us little people who are being taken advantage. To those people against us, I ask you to step into our shoes, to live our life, for one day and see what it’s like.”
Diane Standaert, executive vice president and director of state policy at the Center for Responsible Lending, called on the CFPB to finalize an air-tight, loophole-free rule to prevent predatory lenders from keeping people trapped in intentionally unaffordable loans. As proposed, the rule risks undermining the laws in 14 states and Washington D.C. that already enforce caps on loans.
“The sheer volume of families and communities organizing to strengthen this rule is overwhelming and shows how important it is that we don’t miss this opportunity to rein in abusive payday loans,” said Standaert.
“The stories featured in Caught in the Debt Trap are heartbreaking, but they are also typical. And they are just the tip of the iceberg,” said Allyson Fredericksen, deputy director of research for People’s Action Institute and author of the report. “Payday loans are designed to trap people when they are most vulnerable and keep them trapped until they have nothing left to give.”