Over the last few weeks, readers of NCLR’s blog series “Truth in Payday Lending” learned how the lack of regulation over the payday lending industry has harmed Latinos and other consumers who turn to these products in times of financial need. These unscrupulous and predatory lenders use a business model dependent upon a borrower’s inability to pay a loan. As a result, consumers have lost millions of dollars and been trapped in a cycle of debt.
NCLR and its partner organizations are encouraged by the newly proposed rule by the Consumer Financial Protection Bureau, which would address payday and car title lending—and end this cycle of debt. The proposed rule covers loans which, on average, carry more than 300% annual percentage rates (APR)—a rate much too high for consumers. CFPB’s proposal would establish an ability-to-repay principle for covered loans, based on a borrower’s monthly income and expenses. While this is already a principle for other types of loans, payday loans have not been subject to this important and fundamental determination of a borrower’s ability to afford a loan.
However, the CFPB’s proposal currently contains loopholes that would exempt certain loans from the ability-to-repay requirement. NCLR strongly believes that the rule should contain no exemptions to the loans that would be subject to this provision. In addition, protections against loan flipping, or re-borrowing additional loans to cover the cost of the original, need to be strengthened. Currently, the proposal has a waiting period of 30 days between loans, which NCLR believes should be lengthened to 60 days. Together, these provisions would allow borrowers to stay in the same cycle of unaffordable debt that many are facing now, undermining the protections the rule is supposed to put into place.
NCLR is advocating for the CFPB’s payday lending rule to:
- Keep a strong ability-to-repay provision, without exceptions.
- Limit the amount of time of indebtedness.
- Strengthen provisions against loan flipping.