Washington, D.C. — Today, the Consumer Financial Protection Bureau, or CFPB, released an outline of future proposals to regulate payday lending at a field hearing in Richmond, Virginia. Joe Valenti, Director of Consumer Finance at the Center for American Progress, released the following statement:
Today’s announcement by the CFPB marks an important first step to better protect economically vulnerable Americans in the financial marketplace. Twelve million Americans take out a payday loan every year, often at triple-digit annual interest rates. Consumers looking to take out loans to meet financial shortfalls deserve the assurance that the products they are using will not leave them in an even deeper financial hole.
Moving forward, the CFPB should ensure that small-dollar loans are designed for borrowers to succeed, rather than trapping them in a cycle of debt. Several of the proposals announced today rightly ensure that borrowers’ ability to repay the loan is taken into account—the hallmark of responsible lending—and that borrowers have the time and flexibility they need to pay back a loan on terms that work for them.
Yet the absence of ability-to-repay provisions in other proposals merits further scrutiny. In particular, relying on a fixed percentage of gross income when making a loan—without regard for a borrower’s expenses and without requiring other limitations on borrowing—is an inadequate approach to protect consumers.
Related resources:
Encouraging Responsible Credit for Financially Vulnerable Consumers by Joe Valenti
Strengthening the Military Lending Act to Protect Troops from Predatory Practices by Joe Valenti and Lawrence J. Korb
Congress Protects Troops from Predatory Lenders; What About Everyone Else? by Joe Valenti and Lawrence J. Korb (The Richmond Times-Dispatch)
For more information or to speak with an expert, contact Allison Preiss at [email protected] or 202.478.6331.