On June 2, the U.S. Consumer Financial Protection Bureau, or CFPB, announced a proposed rule to address payday and auto title loans, which often trap consumers in a cycle of debt. Many borrowers turn to these risky loans when trying to fix a financial crunch. However, payday and auto title loans often only make things worse, costing consumers more than $8 billion annually in interest and fees. Unable to pay back the first loan at a triple-digit annual interest rate on time, borrowers ultimately end up reborrowing or refinancing over and over again to try to pay back the debt. Some borrowers lose their cars or their bank accounts in the process. Adopting a strong rule that requires lenders to determine the borrower’s ability to pay back a loan and limits aggressive collection practices, among other steps, would greatly reduce the potential for predatory loans to destabilize families and communities.
Joe Valenti is the Director of Consumer Finance at the Center for American Progress.