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Federal Agency Wants Comments From Public on Payday Loan Rules

New Rule Proposed Would Require Lenders to Determine Whether Consumers Have Ability to Repay Payday, Auto Title, and Other High-Cost Loans
CFPB
The Consumer Financial Protection Bureau has been around for five years now. CFPB

WASHINGTON, DC–At the end of July, the Consumer Financial Protection Bureau (CFPB) said it wanted to hear from the public regarding payday loans.

When people are short cash, they turn to "payday" and similar loans to get by, said David Silberman, author of a Policy & Compliance blog on the CFPB’s website.

But Silberman says payday loans, which quickly produce cash, usually carry an average annual interest rate of more than 300% – plus additional fees – and sometimes become debt traps.

In June, the CFPB released a proposed rule making it mandatory for lenders to determine whether borrowers have the means to pay back their loans.

The rule would also eliminate “repeated debit attempts that rack up fees and make it harder for consumers to get out of debt,” wrote Silberman. “These strong proposed protections would cover payday loans, auto title loans, deposit advance products, and certain high-cost installment loans.”

"Too many borrowers seeking a short-term cash fix are saddled with loans they cannot afford and sink into long-term debt," explained CFPB Director Richard Cordray.  "It’s much like getting into a taxi just to ride across town and finding yourself stuck in a ruinously expensive cross-country journey."

The rule was formally published in the Federal Register on July 22, providing a simple way to submit comments at www.Regulations.gov.

The deadline for submitting comments on the proposed rule is October 7.

“If you or someone you know has had an experience with payday and other similar loans, [the CFPB] would like to hear from you,” wrote Silberman.

Additionally, the CFPB is “seeking comments from financial institutions … affected by the rule, consumer advocates, and anyone else who wants to share their views.”

The CFPB also announced an inquiry into other questionable high-risk loan products which and business practices not specifically covered by the proposed rule.

The deadline for submitting comments on the “Request for Information” (RFI) is November 7.

“The CFPB seeks feedback on practices and products that are related to but may not be addressed in the Bureau’s concurrently published Notice of Proposed Rulemaking on Payday, Vehicle Title, and Certain High-Cost Installment Loans (Concurrent Proposal),” reads regulations.gov.

The CFPB explained that its rule would apply to certain short-term and longer-term credit products, noting that these are "aimed at financially vulnerable consumers."

It said it had "serious concerns that risky lender practices in the payday, auto title, and payday installment markets are pushing borrowers into debt traps."

"Chief among these concerns is that consumers are being set up to fail with loan payments that they are unable to repay." said the CFPB. "Faced with unaffordable payments, consumers must choose between defaulting, reborrowing, or skipping other financial obligations like rent or basic living expenses like food and medical care."

The CFPB said it is "concerned that these practices also lead to collateral damage in other aspects of consumers’ lives such as steep penalty fees, bank account closures, and vehicle seizures."

Loans covered by the proposal include: Payday and other short-term credit products and High-cost installment loans.

The CFPB said that it was exploring "consumer protection concerns" regarding loans that "serve similar populations and needs" as the pending proposal:

In this Request for Information (RFI), the Bureau seeks comment on: Potential consumer protection concerns with loans that fall outside the scope of the Bureau’s Concurrent Proposal but are designed to serve similar populations and needs as those loans covered by the proposal; and business practices concerning loans falling within the Bureau’s Concurrent Proposal’s coverage that raise potential consumer protection concerns that are not addressed by the Concurrent Proposal. The Bureau seeks comment from the public about these consumer lending practices to increase the Bureau’s understanding of and support for potential future efforts, including but not limited to future rulemakings, supervision, enforcement, or consumer education initiatives.

The Bureau notes that it does not seek information that could directly identify individual consumers.

As we reported in February, the CFPB has been working towards a long-awaited a rule targeting "debt traps." 

“The Consumer Bureau is proposing strong protections aimed at ending payday debt traps,” said Cordray. “By putting in place mainstream, common-sense lending standards, our proposal would prevent lenders from succeeding by setting up borrowers to fail.”

A statewide group based in Newark is among the advocates fighting for changes to the loan regulations.

“We have been reaching out to organizations, municipalities, politicians, business owners, and the general public to support our campaign by submitting their comments about their experience with payday lending through an online portal,” said Lorena Guadiana of New Jersey Citizen Action (NJCA).

Guadiana said NJCA is seeking municipal resolutions from organizations and individuals “in support of stronger consumer protections against predatory payday lenders.”

"We are concerned about loopholes in the proposed rule that could undermine NJ state law. NJ has a 30% usury cap in place which prohibits predatory high-interest rate payday loans. The CFPB cannot issue a national cap, but it can do more to ensure that our state law is not violated as it is now by predatory lenders via the internet with impunity," said Guadinia.

"We are asking organizations to place a letter on their organization letterhead and encourage any other affiliates to also generate a letter." 

"We are asking members of the community to submit a comment and share an online portal so we can collect as many comments about the public's experience with payday lending," Guadiana told NBToday. "These comments will be delivered to the CFPB."

Organizations can help us distribute the message and email their membership about the open online comment portal: www.stoppaydaypredators.org/njca.

Organizations may send letters to the CFPB through US mail or they can provide the letter(s) to NJCA.  The organization asks any other organizations that opt to send in a letter to send a copy to beverly@njcitizenaction.org.

Washington Post columnist Michelle Singletary wrote in July that she spent some time with Richard Cordray, Director of the CFPB, and others who work in the bureau “to discuss the CFPB at its five-year mark.”

She asked Cordray what he’s “most satisfied about regarding the work [done by the CFPB.]

“We have made real change in the way financial institutions treat consumers,” Cordray told the Post. “Companies know that they have to comply with the law that somebody is looking over their shoulder to make sure they do that.”

“We issued a report on the credit card market where we highlighted risky practices, including the potential for these promotions to hit consumers with back-end pricing,” Cordray told the columnist in response to questions about concerns brought to the CFPB by the Consumers Union.

“We reported that consumers with lower credit scores are paying more for these products, but they do so at the back end of the transaction, with annual interest rates of around 25%," said Cordray.  "As part of our work overseeing the credit card market, we will continue to monitor these practices."

He continued: “At the same time, we’ve done significant work to stamp out illegal credit card practices for marketing, billing and enrollment for credit card add-on products. That work has resulted in over a billion dollars in relief to millions of harmed consumers.”

Singletary noted that following the CFPB’s official release of its “proposed rule on payday loans,” a few lenders indicated they’d find alternative methods of issuing the “costly loans.”

She asked the director how he thought the rules would successfully protect consumers.

“The CFPB wants “consumers to be able to access credit that helps them, not harms them. Our proposed rule would establish strong consumer protections that will keep borrowers’ short-term needs from becoming long-term burdens,” answered Cordray.

“We are certainly aware of the history of lenders avoiding regulations at the state or federal level, and we have included a broad anti-evasion provision in the proposal. We also have an ongoing inquiry into possible future evolution in the marketplace, and we’re looking at risks to consumers posed by loans that fall outside our proposal’s coverage.”

Singletary asked Cordray on the other issues he was working on in the CFPB's first five years of existence.

“As a new agency, it’s critical that we continue building a direct relationship with American consumers," said Cordray, saying the CFPB was "working to curb potentially harmful practices with strong new consumer protections for payday lending, debt collections and arbitration clauses that block people from suing consumer financial companies.”