CU applauds CFPB’s proposed national standards for payday loans and other high cost credit
CFPB urged to ensure strict underwriting requirements apply to all such loans and that other abusive practices are eliminated
WASHINGTON, D.C. – In comments submitted today with the Consumer Financial Protection Bureau (CFPB), Consumers Union, the policy and mobilization division of Consumer Reports, praised the financial watchdog’s proposal to set national standards for payday loans and other high-cost credit. Under the proposed rule, lenders would generally be required to evaluate a borrower’s ability to pay back their loans and would face limits on the number of times they could debit a borrower’s bank account, which can trigger costly overdraft fees.
The consumer group urged the CFPB to strengthen its proposed regulations by removing exemptions that would allow some lenders to avoid the robust underwriting requirements and by barring lenders from debiting a borrower’s account more than once.
“We applaud the CFPB for proposing new rules to rein in predatory lenders that trap their customers in a cycle of abusive debt,” said Suzanne Martindale, staff attorney for Consumers Union. “However, this proposal would let some lenders off the hook by exempting them from crucial underwriting requirements. We urge the CFPB to close these loopholes and put an end to the kind of shady practices that keep consumers on a treadmill of debt.”
The CFPB’s proposal covers payday loans, auto title loans, deposit advance products, and select high-cost installment and open-ended loans. Too often, these loans prove very difficult for borrowers to pay back and they end up defaulting, taking out another loan, or struggling to cover other financial commitments.
In the case of payday loans, the CFPB’s own research has found that four out of every five borrowers – or 80 percent – have to re-borrow from the same lender within 14 days, and almost 90 percent reborrow within 60 days. More likely than not, a person taking out a payday loan will end up taking out 10 loans in a sequence.
Short term auto-title loans are equally troubling, and come with the added risk of losing one’s car. The CFPB’s research has shown that approximately 1 in every 5 people who takes out an auto-title loan with a balloon payment loses their car to eventual repossession. Losing a car can put many working Americans at risk of losing a job or struggling to meet other obligations due to the lack of transportation.
“High cost lenders claim they are providing a ‘safety net’ to struggling families but their profits depend on practices that put consumers at risk,” said Martindale. “That’s why it’s so critical for the CFPB to enact rules that prevent lenders from endangering consumers by burying them deeper in debt.”
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