The regulator of the nation’s largest banks has finalized a rule that allows predatory lenders to do an end-run around state interest rate caps, exposing people to loans in excess of 100% APR that violate state rate limits. Merely by putting a bank’s name on the fine print of the paperwork, predatory lenders could claim that the loan is a bank loan exempt from state rate caps.
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.
Americans of all partisan identities, and across all regions of the United States, strongly support enacting new consumer protections on high-interest lending during the coronavirus crisis. Americans are highly supportive of prohibiting all high-interest loans during the crisis and of capping interest rates for consumer loans, according to a new bipartisan poll from Lake Research Partners and Chesapeake Beach Consulting.
[T]he process of rolling back the mandatory underwriting requirement provisions of the 2017 small-dollar lending rule was, at best, highly improper. We urge you to suspend the finalization of the rule pending a full investigation of the facts. There is a strong case to be made that the CFPB needs to restart the regulatory process entirely.
In The News: Trump Appointees Manipulated Agency’s Payday Lending Research, Ex-Staffer Claims (The New York Times)
Linda Jun, a senior policy counsel for Americans for Financial Reform, a consumer advocacy group: “To this day, despite many people asking, they haven’t provided anything about the basis for changing this rule beyond some vague references to new research. It’s hard to see the reversal as anything other than political.”
Private equity has pushed into the high-priced consumer loan industry, offering payday and other consumer loans that profit off trapping borrowers in a cycle of debt. Private equity firms own over 5,000 storefront payday and online lenders that often make loans at 300% annual percentage
Under the rule, a borrower would have to sign a notice authorizing the lender to withdraw from the account after those two consecutive failures. “If I was smart, I would only sign that if there was money in there,” says Linda Jun, a policy counsel with Americans for Financial Reform, a regulatory and consumer protection coalition. “Aside from getting charged more for a negative balance, banks close bank accounts over this stuff, you could lose access to banking entirely.”
In The News: Want To Make Payday Loans In States Where It’s Outlawed? Rent A Bank! (Talking Points Memo)
FDIC Chair Jelena McWilliams “is doing the bidding of loan sharks who have a decades-long history of trying to get around state consumer protection rules,” Americans for Financial Reform spokesperson Carter Dougherty observed. “And now a federal regulator is helping them do it.”
A video obtained by consumer watchdog groups Allied Progress and Americans for Financial Reform shows payday industry executives bluntly discussing how campaign contributions to the Trump campaign has bought them access to his administration. In a recent webinar, predatory lenders reveal their plan for using campaign cash to lock in a final CFPB payday rule that enriches them at consumers’ expense.
The rule, which was years in the making, created vital protections for consumers of payday, car title, and some longer-term loans to ensure that predatory lenders don’t trap customers in unaffordable loans. Underlying the rule is the common-sense principle that lenders should consider whether borrowers have the ability to repay a loan before they risk their financial well-being.