CU urges lawmakers to oppose repeal of CFPB’s payday loan protections for consumers
CFPB rule requiring sensible underwriting and limits on repeat borrowing threatened in Congress
WASHINGTON, D.C. – Consumers Union, the policy and mobilization division of Consumer Reports, today urged Congress to not repeal a rule adopted by the Consumer Financial Protection Bureau (CFPB) in October that would protect consumers who take out high-cost payday, installment and auto title loans. Under a Congressional Review Act resolution introduced today in the House of Representatives, the CFPB’s new rule could be repealed by lawmakers before it goes into effect in mid-2019.
“Far too many cash strapped consumers who take out payday loans and other high-cost credit wind up falling further behind and deeper in debt,” said Suzanne Martindale, senior attorney for Consumers Union. “The CFPB’s new rule is long overdue and requires sensible underwriting and limits on predatory practices to help ensure consumers can repay their loans. Consumers will remain vulnerable to getting trapped in debt if Congress passes this misguided resolution and revokes these reasonable standards.”
The CFPB’s rule targets the most abusive short-term lending practices to protect consumers, while paving the way for more responsible lenders to emerge with safer alternatives. Under the new rule, lenders will generally be required to make sure borrowers can pay back short-term loans and will face restrictions on pushing consumers into back-to-back loans to pay off old debts. Lenders will also be prevented from repeatedly debiting consumers’ bank accounts without permission, which can trigger costly overdraft fees.
A CFPB review found that a typical payday loan of $350 carried a median fee of $15 per $100 borrowed and would come due after two weeks, which translates into a 391 percent APR. The CFPB found that many borrowers repeatedly roll over their payday loans or take out additional loans because they are unable to pay off the loan at the end of the two week term. Nearly half of payday loan borrowers have more than 10 transactions a year (14 percent had 20 or more transactions a year). Most borrowers who take out a new payday loan do so on the same day the old loan is closed or soon thereafter.
Similarly, consumers who take out auto title loans are often unable to pay them off when they become due and are forced to re-borrow and pay more fees. A CFPB analysis of auto title loans between 2010 and 2013 found that 80 percent of borrowers signed up for another title loan on the same day their previous loan was repaid. More than two-thirds of all auto title loan business comes from borrowers who take out seven or more consecutive loans during the course of a year. One in every five borrowers eventually loses their car due to repossession.
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