CONSUMER FINANCIAL PROTECTION BUREAU RELEASES HISTORIC, NATIONWIDE PROTECTION AGAINST PAYDAY LOAN ABUSE
Illinois Consumers Already Paying Over $500 Million in Fees
FOR IMMEDIATE RELEASE: OCTOBER 5, 2017
CHICAGO, IL— Today the Consumer Financial Protection Bureau (CFPB) issued their final payday loan rule, which will at last establish strong nationwide protections from this abusive industry. The rule’s protections will reduce the harms of short-term payday and car-title lending to Illinois families. Woodstock Institute strongly supports this action, but still calls on Illinois lawmakers to establish a rate cap of 36% similar to the nationwide cap proposed in Senator Durbin’s bill.
“This federal rule is necessary to protect borrowers like those in Illinois who frequently are trapped in debt due to payday loans with interest rates over 300 percent,” said Dory Rand, president of Woodstock Institute and a former member of the CFPP’s Consumer Advisory Board. For borrowers, a never-ending cycle of debt caused by repeat borrowing can cripple their financial lives. The vast majority of payday loan fees are due to borrowers taking out an excess of ten loans a year.
Payday and car-title lending costs Illinois families over a half billion ($503,464,062) per year in abusive fees— $270,204,194 in Payday loan fees and $233,259,868 in car title fees, according to the Center for Responsible Lending.
Central in the CFPB rule is the common sense principle that lenders check a borrower’s ability to repay before lending money – a measure supported by over 70% of Republicans, Democrats, and Independents. “Requiring payday lenders to determine whether a borrower can actually repay their loan is a common sense protection that is long overdue,” said Brent Adams, Senior VP of Woodstock. Adams wrote the State’s Payday Loan Reform Act, which became law in 2005, and regulated the industry as Secretary of Financial and Professional Regulation from 2009-2012.
The new rule is a big win for borrowers. “I am very pleased that the final CFPB payday rule will protect vulnerable consumers by implementing an ability to repay standard, for which Woodstock Institute strongly advocated,” said Rand.
But, while the Consumer Bureau’s rule guards against the most heinous of loan shark abuses, Rand cautions, “The CFPB’s rule cannot be borrower’s sole protection from payday lenders.” Woodstock supports legislation, sponsored by Senator Durbin, to establish a nationwide interest rate cap of 36%.
Adams further noted, “Make no mistake, the campaign against this rule will be an industry-funded effort to protect their ability to keep consumers trapped in a cycle of debt.”
Woodstock Institute is a leading nonprofit research and policy organization in the areas of equitable lending and investments, wealth creation and preservation, and safe and affordable financial products and services. Woodstock Institute works locally and nationally to create a financial system in which lower-wealth persons and communities of color can safely borrow, save, and build wealth so that they can achieve economic security and community prosperity.