Congressional lawmakers are calling on the director of the Consumer Financial Protection Bureau to reconsider the bureau’s decision to delay the compliance date for the payday loan rule.
The compliance date for the 2017 Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule — or payday rule – was supposed to be Aug. 19. The bureau has yet to ask a court to lift a stay the agency requested so that the payment provisions of the rule could be implemented without further delay.
“Contrary to recklessly false characterizations, payday, car-title, and predatory consumer installment loans made without regard to the borrower’s ability to repay are not acceptable or sustainable sources of credit,” Rep. Maxine Waters (D-CA), chair of the House Financial Services Committee, and Rep. Jamie Raskin (D-MD), wrote in a letter to CFPB Director Kathy Kraninger. “Payday and car-title lenders have the leverage to seize hundreds if not thousands more than the original cost of the loan and have control over the borrower’s bank account and/or the ability to repossess the borrower’s car. The result is obvious: payday and car-title lenders lack the incentive to make loans that borrowers have the ability to repay while still being able to afford basic necessities of life. Research, including that coming from the Consumer Bureau, has shown that these predatory products trap people in a cycle of debt and leave them in a significantly worse position than they were in prior to taking out the loan.”
The rule is designed to rein in predatory business practices by payday lenders. Payday loans, also called small-dollar loans, provide quick access to cash in exchange for full payment plus variable interest rates. The original CFPB rule states that lenders are restricted from making loans that borrowers are unable to pay back with accrued interest. The rule also limits the number of consecutive loans that can be taken and requires longer repayment timeline.
However, the CFPB is proposing to rescind certain provisions of the rule, specifically requirements that state lenders make certain underwriting determinations before issuing payday, single-payment vehicle title, and longer-term balloon payment loans. These changes would remove key protections for consumers, the lawmakers said.
“Allowing the 2017 rule to go into effect as planned is the bare minimum that the CFPB should do. It is absurd that we should even have to make such a straightforward request of an agency whose charge is to protect consumers from unfair, deceptive, and abusive financial practices. Even so, the CFPB must not only do this work, but do even more – such as use its enforcement authority to provide redress to people harmed by predatory lending practices, and it must continue the work to address the harms of long-term payday, car-title, and high-cost installment loans as it originally set out to do in its 2016 proposed rule,” Diane Standaert, executive vice president and director of state policy, Center for Responsible Lending, said.
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