Washington, D.C. — Today, the Consumer Financial Protection Bureau, or CFPB, released a proposed rule to regulate payday and auto title loans at a field hearing in Kansas City, Missouri. According to the Pew Charitable Trusts, 12 million Americans take out at least one of these high-cost loans each year to deal with financial shortfalls. However, the CFPB has found that four out of every five borrowers are unable to pay back the loan without having to borrow again. As a result, the vast majority of borrowers end up having to take out seven or more loans in a year, turning a temporary setback into a cycle of debt.
Carmel Martin, Executive Vice President for Policy at the Center for American Progress, released the following statement:
Today in Kansas City, the CFPB is taking a major step toward reining in predatory debt traps that exploit the financial struggles of millions of economically vulnerable Americans and often leave them worse off than before. Recent research has shown that these loans cost consumers nationwide $8 billion each year in interest and fees, while their cost to destabilized families and communities may be even greater. A loan of a few hundred dollars should not lead to insurmountable debt.
Joe Valenti, Director of Consumer Finance at the Center for American Progress, added:
During the rulemaking process, the CFPB should ensure that small-dollar loans help borrowers succeed, rather than profiting off of borrowers’ inability to pay back loans that often carry triple-digit annual interest rates. This includes requiring that lenders take into account the borrower’s ability to repay the loan—the hallmark of responsible lending. It also includes giving them the time and flexibility to pay back a loan on reasonable terms, and limiting the likelihood of devastating outcomes such as a bank account closure or repossessed car.
To date, the CFPB has worked diligently to develop a data-driven rule, and Congress should not impede its ability to move forward on behalf of American consumers. The CFPB should also address the potential for loopholes–as many states have learned the hard way in regulating these loans–because even one unaffordable loan is one too many.
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For more information or to speak with an expert, contact Allison Preiss at [email protected] or 202.478.6331.