FOR IMMEDIATE RELEASE
July 7, 2020
Contact: Carter Dougherty, carter@ourfinancialsecurity.org, (202) 251-6700
Rollback of Payday Protections Enables Predator Profiteering Amid Health Crisis
CFPB gutting of underwriting provision underscores need for 36% rate cap
Washington, DC – The director of the Consumer Financial Protection Bureau, Kathleen Kraninger, today announced the agency will strip out the core of a rule written and finalized under previous leadership that would shield consumers from debt trap payday and car-title loans. The decision will leave millions of people vulnerable to grave financial abuses at a time of economic crisis, and will harm people of color who are suffering higher rates of illness and of unemployment, and whom this industry targeted even before the pandemic.
“Amid a global pandemic and an economic contraction with little precedent, the CFPB has chosen to devote scarce resources not to protecting consumers, but to dismantling guardrails that would have given people more protection from predatory lenders,” said Linda Jun, senior policy counsel at Americans for Financial Reform. “This decision comes after a corrupt process driven by a combination of industry money and rigid ideology that was divorced from facts and evidence. It will give loan shark-like payday lenders greater leeway to exploit the current crisis by continuing to trap people in debt and hamper their financial recovery.”
The rollback eliminates the regulation’s ability-to-repay provision, a common-sense provision that would have required lenders to confirm, before issuance, that borrowers can pay back the loan.
Kraninger’s failure to protect consumers from payday loans comes as other Trump-appointed regulators are also taking steps to enable more predatory lending, just as families face perhaps the greatest level of economic distress since the Great Depression. In March, the CFPB joined the FDIC and OCC in allowing banks to offer payday loans. And the FDIC recently announced a new rule, following similar action from the OCC, to let payday lenders partner with banks to outflank state limits on interest rates.
All these actions underscore the need for Congress to act in the next round of legislation responding to the coronavirus crisis by capping interest rates nationwide.
“With regulators throwing open the doors to predatory lenders Congress must step in to prevent profiteering and stop payday and car-title lenders from burying people in high-interest debt,” Jun said. “Predatory lenders will do nothing but prolong the human misery stemming from this crisis.”
Background
After more than 5 years of research and public comment, then-CFPB Director Richard Cordray approved the 2017 rule on small-dollar loans, a first-of-its-kind federal regulation on the payday and car-title lending industry. The research established that these loans, on which interest rates often exceed 300 percent, offer not access to credit but a future in debt, and that most such loans (80 percent) are taken out to cover previous borrowing. The small-dollar lending industry has a long history of targeting communities of color.
Since Mick Mulvaney (in 2017) and then Kathy Kraninger (in late 2018) took over the bureau, they focused on gutting the central provisions of the rule and using the courts to delay the provisions that would have limited the amount of times a lender can debit a borrower’s bank account.
The ability-to-pay provision was originally set to go into effect on Aug. 19, 2019, but the CFPB delayed implementation for one year. If the rule had taken effect as originally scheduled it would already have kept nearly $6 billion in the pockets of economically vulnerable people. The online Debt Trap Tracker is tallying these losses in real-time.
The process of rolling back the regulation was corrupt, and violated basic precepts of good governance. The New York Times published a blockbuster investigation based on a detailed memo documenting how CFPB political appointees, manipulated research and used “statistical gimmicks” to downplay harm to consumers from eliminating these protections. The Kraninger CFPB conducted no research as part of the rollback, let alone studies that would justify this action.
The Washington Post published an expose about a payday lending CEO, Mike Hodges, who solicited contributions to the Trump campaign from the industry, saying it would bolster their influence on the administration. A follow-up piece from The Post laid out the role of Mulvaney’s former chief of staff as Hodges’ lobbyist. The American Prospect documented industry efforts to gut the payment provisions of the rule.
Opinion surveys consistently reveal that Americans across political parties support strong consumer protection measures, including limitations on interest rates. Eight in 10 support prohibiting high-cost loans during the pandemic and its aftermath, according to a recent poll commissioned by AFR and the Center for Responsible Lending. A separate survey by the Morning Consult for CRL found 82 percent of voters back a 36 percent rate cap. Voters have also backed rate caps in state referendums by overwhelming margins.
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