As more and more families fall on hard times, the CFPB keeps them exposed to 400% interest rate payday loan debt traps that disproportionately harm Black and Latino communities
WASHINGTON, D.C. – Today, the Consumer Financial Protection Bureau (CFPB), under the leadership of Trump-appointed Director Kathy Kraninger, issued a final rule that destroys consumer protections meant to prevent payday and car-title lenders from burying people in debt. Instead of building wealth, these fringe financial actors strip people of their wealth by charging triple-digit interest rates. These lenders are more likely to locate their stores in Black and Latino communities than in white communities of the same income level. This discrimination coupled with usurious interest rates provides evidence of payday lenders’ contributions in widening our nation’s massive racial wealth gap.
Today’s new rule repeals the 2017 CFPB Payday Rule’s central provision, which generally requires lenders to verify that a borrower can repay a loan before issuing that loan. This ability-to-repay standard is needed to prevent a devastating cycle-of-debt, an all too common experience of payday and car-title borrowers. The debt trap, whereby an initial unaffordable loan leads to another unaffordable loan to repay the prior one, and so on, is the heart of the payday lenders’ exploitative business model.
Members of the Stop The Debt Trap coalition — which consists of more than 700 civil rights, community, consumer, faith, labor, seniors, veterans, small businesses and other groups covering all fifty states — spoke out against this harmful action:
“The action today by CFPB’s political leadership gives payday lenders open season to trap borrowers in unaffordable 400% interest loans. In this crisis families need the CFPB to instead work to ensure that they are treated fairly by enforcing the common sense rule that payday lenders should make loans that borrowers can reasonably afford to repay,” said Charla Rios, Researcher at the Center for Responsible Lending.
“Amid the massive crisis we are facing now, CFPB should not be devoting scarce resources to dismantling guardrails that gave people some protection from predatory lenders. This action will do nothing but ensure that payday and car-title lenders can exploit people freely during the pandemic and its aftermath, and slow the eventual economic recovery, especially for Black and Brown communities. Congress needs to step in and cap sky-high interest rates to stop lenders from burying people in debt,” said Linda Jun, senior policy counsel at Americans for Financial Reform.
“While it’s the predictable end to a rule-making process corrupted at every stage by payday industry money, it’s still shocking the Trump CFPB chose to enrich the President’s predatory lender donors and further 400% interest rates in the middle of a historic economic crisis. Consumers deserve better,” said Jeremy Funk, spokesman for consumer watchdog Allied Progress.
“It’s mind-boggling that the CFPB is gutting a sorely needed rule that puts modest limits to curtail the worst excesses of predatory 400% APR loans that target communities of color, low-income families, and older consumers,” said Lauren Saunders, associate director of the National Consumer Law Center.
“The CFPB’s rollback of a payday rule that sought to establish ability-to-repay standards to protect consumers at a time of unprecedented financial challenges is horrific. To prioritize the payday loan industry over American consumers and their families during a financial crisis is not only cruel, but a failure to fulfill its mission,” stated Rachel Weintraub, legislative director and general counsel at Consumer Federation of America.
“Small businesses are in crisis. Repealing this rule opens up more avenues for predatory lending, which decimates the local economy, siphoning off money that would otherwise be spent in the community, exactly when small businesses are desperate for cash. This move from the CFPB doesn’t support small businesses or consumers, it kicks them while they are down,” said Amanda Ballantyne, Executive Director of the Main Street Alliance.
“The payday loan industry will applaud today’s decision, but it will cost millions of consumers struggling to make ends meet billions of dollars per year,” said Brent Adams, Senior Vice President of Policy & Communications for Woodstock Institute.
“With millions of Americans treading in perilous financial seas full of loan sharks, Trump’s titular head of consumer financial protection has just poured blood in the water,” said Bartlett Naylor, financial policy advocate at Public Citizen.
In 2017, under a different director, the CFPB issued its Payday Rule, which consisted primarily of the ability-to-repay (ATR) standard and protections from payday lenders causing repeated bounced payments against borrowers’ checking accounts. A one-page overview of the 2017 Payday Rule is linked here. Today’s final rule guts the 2017 rule by rescinding the ability-to-repay provisions of the 2017 rule.