On Tuesday, January 16, the effective date of the “Payday, Vehicle Title, and Certain High-Cost Installment Loans” rule, the Consumer Financial Protection Bureau issued a statement, indicating it would engage in a rule-making process to reconsider its Payday Rule. The Indiana Assets & Opportunities Network (the Network) sees this as a significant step backward in consumer protections for low-income households.
Although it remains unclear why the consumer watchdog agency decided to reconsider the Payday Rule, some have suggested there is an effort to create a bank deposit advance loan safe harbor, weaken the ability-to-repay standards and verification requirements, and soften the cooling off period for the loans. Taken together, these actions would drastically weaken the protections the current version of the Payday Rule provides. The Administrative Procedures Act requires that, at minimum, the Bureau must have a public comment period for the revised rule, after which they could finalize a new version.
This announcement comes only three months after the Bureau finalized the Payday Rule, which would address some of the harms associated with payday loan products. The Payday Rule mandates that lenders determine a borrower’s ability to repay, inclusive of making loan repayments and meeting other financial obligations and basic needs, before issuing a loan. The statement also comes on the heels of the November appointment of a new acting director, upon which the Bureau added language to the agency’s description of responsibilities. The added language includes “identifying and addressing outdated, unnecessary, or unduly burdensome regulations.”
Although current leadership at the Bureau may view the Payday Rule as outdated, unnecessary, or unduly burdensome, the Network understands the Payday Rule as providing critical protections to low-income borrowers. The Network supports the Payday Rule, as it offers common sense protection to vulnerable borrowers. The Payday Rule is the culmination of more than five years of stakeholder input and extensive research showing clear evidence of harm caused by making these loans without regard to ability-to-repay. A large body of research has demonstrated that payday and car title loans are structured to create a long-term debt trap that drains consumers' bank accounts and causes significant financial harm, including delinquency and default, overdraft and non-sufficient funds fees, increased difficulty paying mortgages, rent, and other bills, loss of checking accounts, and bankruptcy.
Hoosiers widely support the Payday Rule. According to recent poll data conducted by Indiana Institute for Working Families, Prosperity Indiana, and Brightpoint in partnership with Bellwether Research and Consulting, 78 percent of Hoosiers, inclusive of Republicans, Independents, and Democrats, would favor an ability-to-repay requirement. The Network stands with the majority of Hoosier consumers in supporting these vital protections.
The Network supports initiatives to increase asset acquisition among low- to moderate-income Hoosiers and advocates for policies to protect these assets. Low-income households often turn to alternative financial services, such as payday loans, in times of economic hardship to smooth income volatility; however, these products often trap borrowers in a cycle of debt which deplete a borrower’s wealth and from which it is difficult to recover. The Payday Rule is necessary to help ensure that lenders cannot trap financially distressed borrowers in a cycle of debt that only leaves them worse off. Weakening the Payday Rule would particularly harm veterans, seniors, and communities of color—often targets of payday lenders.