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.