Protection against predatory loans is gone, by Charlene Crowell | Richmond Free Press


As COVID-19 continues to wreak havoc across the country, the Consumer Financial Protection Bureau recently took a misguided and untimely step.

On July 7, the agency removed its own 2017 payday rule, which required lenders to first determine whether a consumer could afford to pay off the high-cost loan.

This regulatory reversal is a financial favor for payday lenders and auto title lenders, and a definite detriment to payday lenders.

consumers who are missing a few hundred dollars for their monthly expenses. In a very real and measurable way, the agency created to protect consumers has given the green light to predatory lenders to continue preying on the poorest and most vulnerable consumers in the country.

“There’s never a good time to authorize predatory loans with 400% interest rates,” said Mike Calhoun, president of the Center for Responsible Lending. “But now is the worst possible time. The pain caused by CFPB’s removal of the wage rule will be felt most by those who can least afford it, including communities of color who are disproportionately targeted. by payday lenders. ”

The COVID-19 pandemic has jeopardized people’s ability to get to work safely, changed the way students try to pursue their education, and imposed grim realities to meet life’s most basic needs like food, shelter and utilities.

Consumers affected by the layoffs were also affected by the loss of the additional $ 600 a week in federal unemployment benefits through the federal CARES law which expired on July 31. Additionally, tenants who have been successful in preserving their homes even when they couldn’t pay should also be concerned about whether they will receive eviction notices. These circumstances present the potential for America’s most cash-strapped consumers to seek out and become financially trapped in predatory, unaffordable loans.

The lure of “quick and easy” money traps approximately 12 million American consumers each year. Instead of a short-term financial solution, most loans take several months or more to be fully repaid. CRL research reveals that typical payday loans are strings of 10 or more. In addition, the amount of interest paid on the loan often exceeds the amount originally borrowed.

Even with decades of consumer advocacy, triple-digit interest on payday loans remains legal in 34 states. In these localities, the profusion of convenience stores and auto titles located in black communities and other communities of color increases the likelihood that consumers will become financial prey which guarantees lenders annual fees of $ 8 billion to them alone.

“By disproportionately locating storefronts in predominantly black and Latino neighborhoods, predatory payday lenders systematically target communities of color, further exacerbating the racial wealth gap,” said Rachel Gittelman, head of outreach services. financials to the Consumer Federation of America.

“The CFPB has no basis to gut the heart of common sense protections that simply required payday lenders to do what responsible lenders are already doing – ensure the borrower has the capacity to repay,” said Lauren Sanders, Associate Director of the National Consumer Law Center. . “The evidence to support the payday loan debt trap is overwhelming and the CFPB’s flimsy apology to repeal the protections does not hold water. “

(In Virginia, under a new equity in lending law that takes effect Jan. 1, 2021, the annual interest rate on payday loans is capped at 36%. However, other fees Monthly financial and service charges are allowed. The maximum amount of these loans are also increased from $ 500 to $ 2,500 and fixed term at a maximum of 24 months.)

If a 36% rate cap is enough to protect the country’s military from predatory lending – which is the law for the military under the Federal Military Lending Act – it’s time to expand that same. protection of the civilian population.

The writer is a senior member of the Center for Responsible Lending.


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