Time to Act on Payday Lending … Happy Birthday Consumer Financial Protection Bureau
It has been five years since the enactment of The Dodd-Frank Wall Street Reform and Consumer Protection Act created the Consumer Financial Protection Bureau (CFPB). Today, the Bureau is working on rules to curb the abuses of the payday lending industry. In Indiana, payday lenders drain $70.5 million from residents annually. This is a loss to local economies. Payday lenders charge, on an average 14 day loan, 356 percent.
As the CFPB takes up this work, Prosperity Indiana and Congressman Andre Carson sent the Bureau a message of strong encouragement. Congressman Carson said, “I was proud to vote for creation CFPB five years ago this month. After the financial crisis, it was absolutely critical to have a dedicated advocate for consumers and make sure they’re treated fairly. The CFPB has demonstrated its ability to fulfill its mission. Now that the CFPB is up and running, we need stronger protections against lenders who prey on consumers in need of quick access to financial capital through payday lending. A medical emergency, accident, or unforeseen expense should not trap a family in a cycle of crippling and endless debt.”
Prosperity Indiana Executive Director, Andy Fraizer said “In Indiana, we are fortunate to have Congressman Carson standing with us as we urge the CFPB to adopt strong rules. Economic opportunity necessitates access to reasonably priced debt and credit options to stabilize families, secure dreams, and address financial needs. Prosperity Indiana and the Indiana Assets and Opportunity Network calls on the Consumer Financial Protection Bureau to adopt stronger payday lending regulations to address the financial agony created by abusive products.”
Congressman Carson is one of 101 congressional signers (68 House members and 33 Senators) of letters urging the CFPB to move forward with rules strong and broad enough to end the abusive practices of payday, car-title, and other high-cost consumer lenders. Strong rules will keep Americans from getting trapped in the cycle of debt that is too often the result of these triple-digit-interest loans.
The payday lending business model is to make loans they know cannot be paid back in full and on time – without requiring the borrower to take out another loan to cover basic necessities like food and rent. In fact, 75 percent of all fees paid to payday lenders come from borrowers who take out more than 10 loans in a year, and three-quarters of all payday loans are taken out within two weeks of a previous loan. One third of the time, when borrowers repay these loans, they overdraw their checking accounts, incurring yet more loan charges.
Under the terms of the Dodd-Frank financial reform law of 2010, the CFPB has the authority to regulate small-dollar consumer loans. The agency released a broad outline of its plans in March, and is expected to come out with a formal proposal later this year.
A new poll conducted in early July by Lake Research and commissioned by Americans for Financial Reform and the Center for Responsible Lending underlines public concern about payday abuses, and strong support for regulation. By more than a 3:1 margin, the survey shows, voters regard payday loans as predatory, rejecting a counterargument presenting them as an important resource. By a ten to one margin, voters across party lines favor a rule requiring small-dollar lenders to verify a customer’s ability to repay.