Big opportunity to rein in predatory payday lenders

CREDO action
Tell consumer watchdog: Get tougher on payday lenders.

Submit a public comment to the Consumer Financial Protection Bureau:
The proposed payday lending rule is a major step forward but should be strengthened to better protect American consumers from predatory lenders. The CFPB should apply ability-to-repay requirements to every loan, limit total indebtedness, increase protections against loan flipping, and broaden the rule to cover any loan that enables lenders to coerce repayment from borrowers.

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Dear 5849376,

Stop predatory Payday Loans

The consumer protection agency just announced a groundbreaking new rule that could "gut" the predatory payday loan industry.1 Sen. Warren called the new crackdown on debt traps from the Consumer Financial Protection Bureau (CFPB), "a big step toward protecting consumers from predatory payday loans" but noted that it "could do more to help protect working families."2

The CFPB's proposal would be the strongest ever federal restrictions on payday lenders – but the final proposal is also weaker than previous drafts, and contains dangerous loopholes.

The payday lenders and their Wall Street backers are already demanding weaker regulations, and the industry's donations have bought loan dealers bipartisan support in Congress. The agency is now accepting official comments on the payday lending rule. This is our last chance before it is finalized to show that Americans support the toughest possible measures against payday lenders.

Tell consumer watchdog: Get tougher on payday lenders. Click here to submit a comment.

The dirty secret of the payday lending industry is that there is no money in people repaying their loans on time. The key to the whole profit-making engine that makes lenders' Wall Street backers rich is tricking people into taking out one loan and then locking them into months or years of debt.

People who take out more than 10 loans each year pay 75 percent of fees.3 Stuck in a cycle of debt, Americans repay one loan with a new one. And since the average payday loan comes with 339 percent interest, and there are more payday lenders in American than Starbucks and MacDonald's combined, it's easy to get trapped.4,5

Under the CFPB's new rules, dealers in most cases will have to make sure people can repay a loan without taking out a new one. There will also be limits on how many times companies can offer more and more expensive loans to the same person.6 Make no mistake, that is the reason why Wall Street is fighting this rule so fiercely.

But that doesn't mean the proposal is perfect. In fact, it is weaker in key areas than previous drafts. Someone could still pay over 300 percent interest on a $500 loan under the new rules.7 The proposal exempts some loans from the ability-to-repay requirement, is soft on equally exploitative "long-term" loans of 45 days or more, and contains massive loopholes that could allow business as usual – for instance, letting lenders say borrowers have the ability to repay because they've done so once before.8 The consumer protection agency needs to make the rule stronger, not weaker.

Tell consumer watchdog: Get tougher on payday lenders. Click here to submit a comment.

The current comment period is the culmination of a fight that began with the 2010 Dodd-Frank Wall Street reform law, which created the CFPB and gave the federal government authority to regulate payday loans for the first time. The agency has released draft rules before, but this is the last step before regulation of payday loans becomes law. From the beginning, the agency's desire to rein in payday lenders has raised the ire of the hedge funds and banks that profit from these legal loan sharks, and driven Republican attempts to curb the CFPB by undermining its funding or replacing its leader with a gridlocked commission.9

Predatory payday loans empty bank accounts and ruin lives. We need to strike a blow against this abusive industry.

Stand with Sen. Warren: Tell consumer watchdog Americans support payday lending rules. Click here to submit a comment.

Murshed Zaheed, Political Director
CREDO Action from Working Assets

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Learn more about this campaign

  1. Stacey Cowley, "Payday Loans' Debt Spiral to Be Curtailed," The New York Times, June 2, 2016.
  2. Sen. Elizabeth Warren, "It's another good day…," Facebook.com, June 2, 2016.
  3. Sen. Brown, "Brown Letter to President Obama on Small-Dollar Loans."
  4. Ibid.
  5. David Dayen, "The Government is Finally Cracking Down on Legal Loan Sharks," Fiscal Times, March 27, 2015.
  6. Cowley, "Payday Loans' Debt Spiral to Be Curtailed."
  7. David Dayen, "New Payday-Loan Rules Won't Stop Predatory Lenders" The Intercept, June 2, 2016.
  8. Stop the Debt Trap, "The CFPB's Payday Lending Proposed Rule: What Works, What Doesn't," StopTheDebtTrap.org, June 2016.
  9. Chico Harlan, "The pending crackdown on payday lending is causing the exact Washington argument you'd expect," The Washington Post, April 5, 2016.

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