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New CFPB Rules Will Fail to Protect Consumers from Predatory Lenders

Michael Dedmon | Policy Manager| The Financial Clinic

Yesterday, the Consumer Financial Protection Bureau (CFPB) announced its intention to rescind key provisions of the Bureau’s 2017 payday lending rules. These changes mean that payday lenders will once again be allowed to make loans without taking a borrower’s ability to repay them into account. Consider this for a moment: this rule change makes clear that payday lenders are free to offer products that are not only not in a borrower’s best interest, but are specifically meant to extract wealth.

The Bureau is also proposing to remove restrictions on “reborrowing,” when a payday loan customer takes out a new loan to pay off an earlier one, which it chose to cap at three successive loans in 2017.  The current regulations were written after an extensive community outreach and consultation process with civil society and with the payday lending industry, and while many of the most abusive practices were left untouched, core elements that trapped borrowers in a cycle of unmanageable debt were significantly weakened.

These proposed rule changes will be disastrous for consumers and they demonstrate that, under Kathy Kraninger’s leadership, the CFPB will continue to side with predatory and abusive lenders at the expense of vulnerable borrowers. “The CFPB’s priority right now should be curtailing the practices that perpetuate the cycles of debt that plague so many of the working poor in the U.S. today, but instead it has decided to look the other way,” says Mae Watson Grote, Founder, and CEO of The Financial Clinic. “The Financial Clinic and our partners see firsthand the way payday and title lending strips wealth from our communities, and especially communities of color. Our coaches are working with customers every day who are saddled with payday loan debt and as a result are struggling to pursue their goals and build their financial security. They have all of the tools and the drive to start that new business, finish their degree, or save for a family vacation – but these unregulated loans turn one financial emergency into a persistent crisis. This is a systemic problem and making sure that customers are well informed just isn’t good enough; it is the job of agencies like the CFPB to make sure borrowers are protected from these abusive loans”

Darren Liddell, the Clinic’s Director of Program Innovation and a long time financial coach, has seen the impact lax regulations on payday lenders can have on customer debt burdens. “The customers I worked with in Miami at Branches during the Urban Institute’s randomized controlled trial had, on average, more debt when they would come in for coaching than the customers we see in New York, and more access to payday loans – some with interest rates over 300% – is definitely a part of the reason why,” he says. “When folks run into a difficult financial situation or an unexpected crisis, sometimes a payday loan seems like the only option. Having simple regulations in place like making sure people can actually pay the loan back or capping the amount of times they can reborrow are really just common sense protections against the worse abuses. The rules CFPB are proposing to rescind now are just the most basic protections every borrower deserves”

The Financial Clinic condemns this proposal in the strongest terms, and will work with our customers, partner organizations, and our peers in the financial security field to fight against this misguided approach. We encourage everyone to get in touch with their representatives in Congress and ask them to publicly speak out against CFPB’s proposed rule changes, and to submit their written comments to the Bureau during the next 90 days.

Mick Mulvaney Wants to Put Millions of Americans at Risk; Why we must save the Consumer Financial Protection Bureau

A message from The Financial Clinic and Neighborhood Trust Financial Partners

In a 2014 interview with the Credit Union Times, a former South Carolina representative was asked how he and fellow lawmakers would like to reform the Consumer Financial Protection Bureau (CFPB). His response: if he had the political ability, he would like to get rid of the agency altogether. This representative was Mick Mulvaney who, as of November 2017, is the acting Director of the CFPB. While GOP lawmakers have floated abolishing the CFPB several times since Trump’s inauguration, this opposition is far from new and is far from over – just last week, Mr. Mulvaney hinted that he would like to end public access to the CFPB’s online complaints database, a tool that has been instrumental in holding companies accountable to the needs of their consumers.

The CFPB was established in 2010 as a legislative response to both the financial crisis of 2007-08 and subsequent Great Recession. Its sole purpose is to “protect consumers from unfair, deceptive, or abusive practices and take action against companies that break the law.” At the time, even top executives at some of the world’s largest financial institutions were quick to concede that more oversight was necessary to prevent some of the practices that induced the economic downturn. Unfortunately, less than a decade later, the political pendulum has swung back and resulted in a tenuous outlook for this federally funded bureau.

As national nonprofits dedicated to helping low-and-middle-income families achieve financial health, The Financial Clinic (the Clinic) and Neighborhood Trust Financial Partners (Neighborhood Trust) see firsthand every day how pervasive financial insecurity is for many Americans and the invaluable support they receive from the CFPB.

Brenda, an aspiring homeowner struggling to manage her delinquent student loan debts, worked with her Financial Counselor at Neighborhood Trust to organize a payment plan with each collection agency—except one. The collector reported the outstanding $13,000 balance as delinquent and was unresponsive to Brenda for months. Her Financial Counselor helped her make a formal complaint to the CFPB through a simple process. Within a month, the CFPB notified the collection agency that they were in violation of Brenda’s rights, resulting in the agency ceasing collections and removing the blemish from her credit report and allowing Brenda to become a homeowner later that year.

Ann, a 78-year-old woman, was concerned about the number of scams and solicitations that she was receiving. Neither she nor her family understood how to stop the harassment, especially by a particular fee-for-credit service. With her financial coach at the Clinic, she was able to use considerable resources of the CFPB to understand her rights and make an easy five-step complaint that took less than five minutes.

Brenda and Ann are just a couple examples of how the CFPB has helped hold third-party actors accountable and been a powerful ally and voice to consumers’ sometimes lonely fight. Yet, their stories, like millions of others, are often overshadowed by mainstream coverage of positive macroeconomic indicators—unemployment is down, inflation is stable, and the stock market was, until recently, hitting new all-time highs.

Financial insecurity is real, isolating, and daunting for the over 100 million low- to moderate-income (LMI) Americans who face it. Healthcare, daycare, and education costs have skyrocketed while stagnant wages and steady inflation have eaten away at LMI individuals’ ability to make ends meet. New business models are no longer constrained by geography; they enable freelance or “gig” work, which entail fewer workplace benefits and variable scheduling leading to income volatility and financial insecurity. In the context of our current economy, these Americans face a razor-thin margin of error where an unexpected overdraft charge or late payment fee can cause a setback that takes many months to recover from.

Americans should be able to navigate a financial landscape where terms hidden in small print can be crippling and credit reports are game-changers, but many people struggle to understand or even access their own reports. While resources can come in many forms—certainly paychecks and other types of income help—the most critical is access to information and supports that help Americans become their own advocates. Nevertheless, even the best self-advocates need a government that can help make a difference in both the large financial stresses and the smaller day-to-day ones. Few organizations have been a stronger ally to this end than the CFPB.

That’s why we are asking you to join us in supporting the CFPB and standing in opposition to any efforts being made to weaken or dismantle the agency, including the changing of its mission statement. Together, we aim to embrace and further the original mission of the CFPB that consumers should have the opportunity to achieve lasting financial security, free from predatory financial practices—one that should go far beyond the reach of partisan politics.

You can help by:

  1. Voicing your support for the CFPB and sharing your perspective. Write to us at administration@thefinancialclinic.org tweet us @NTFP_Official or @financialclinic, or share a story, audio, or video recording using our form. We will share these stories on social media and our websites, as well as invite others to join us in highlighting the potentially harmful impact that the disappearance of good actors could have on our clients and customers.
  2. Encouraging others to submit their complaints to the CFPB. The current CFPB Director has made it clear that the CFPB’s agenda will be set by examining consumer complaint content.

Americans like Brenda and Ann are counting on the CFPB. Now, more than ever, is the time to make our voices heard.