Chicago—Today, the Consumer Financial Protection Bureau unveiled a proposal for a new national rule on payday and car title lending that has the potential to save Illinois residents millions if changes are made before the rule is finalized.
“The Consumer Financial Protection Bureau’s proposed rule on payday and car title lending is a good beginning, but there is still much work to be done to ensure this rule truly protects consumers from the legalized loan sharks who prey on our communities,” Woodstock Institute President Dory Rand said. “Fortunately, this is just the opening offer. Our community will be working hard over the next few months to help the CFPB understand the importance of closing loopholes in what is otherwise a well-thought out proposal. In doing so, they can shut the debt trap once and for all.”
“Woodstock Institute strongly supports and applauds CFPB’s proposed use of a real ‘ability to repay’ standard for most payday and lump sum auto title loans and other provisions that stop the debt trap for vulnerable borrowers,” Rand continued. “We urge CFPB to strengthen the final rule by applying the ability to repay standard to all loans.”
Payday and car title loans with interest rates that average more than 300 percent drain in fees annually from the pockets of Illinois residents who can least afford it, according to a report by the Center for Responsible Lending.
Advertising as a way to meet short-term financial needs, the actual business model of these loans is designed to trap borrowers in debt for years on end, extracting fees that quickly add up to far more than the amount borrowed.
Woodstock Institute and advocates around the country have been pushing for a rule that simply requires these lenders to do what any responsible lender does already – to determine whether a borrower is likely to be able to pay back the loan, without defaulting on basic necessities like rent and groceries, and without immediately taking out another loan.
While the CFPB rule does create such an affordability standard, the rule also allows for too many exemptions and leaves open too many loopholes for that standard to meaningfully reduce the harm of predatory lending. A more detailed analysis of what works and what doesn’t about the CFPB’s proposal is available here: http://bit.ly/25CNL0H
The CFPB will be seeking comments from the public until September 14, 2016, after which they will review before making the rule final in 2017. In the meantime, consumers are encouraged to comment and suggest changes to the final rule that will close loopholes and remove exemptions. Comments can be offered at www.stoppaydaypredators.org