Proposed plans to get rid of rules designed to protect largely low-income consumers from predatory high-interest loans risk the well-being of some of America’s most vulnerable households.
The U.S. Consumer Financial Protection Bureau recently announced a proposal to repeal rules that would have meant payday lenders and auto title lenders had to ensure customers could repay loans under contract terms. Loans not meeting this requirement would be considered unfair and abusive.
When people get trapped in abusive loan deals, they can get stuck sacrifice their well-being and that of their families in order to make refunds. This rule would have prevented people from getting trapped by these types of predatory payday loans and auto securities.
Many payday lenders exploit cash-strapped people, often with limited access to other forms of credit, by offering them small, short-term, high-interest loans. Some borrowers have reported paying triple-digit interest rates, in some states more than 600 percent, on their payday loans.
Payments then skyrocket and people struggle to keep up, forcing some to choose between their loans and their basic needs. Research has shown that payday loans disproportionately affect Afro-American, latino, and poor communities.
The Consumer Financial Protection Bureau payday lender rules, finalized in 2017, created a national standard and safety measures to prevent this predatory interest rate trap for payday loans and auto title loans, while providing access to small dollar loans. The rule was created after a long public comment period, with the participation of payday lenders and the public.
Since the final rule was announced, industry lobbies have been pushing for a backtrack, saying the rules would limit low-income communities’ access to much-needed credit. The answer to limited access to credit is not to allow more loans with exorbitant interest rates and unrealistic terms that ultimately leaves borrowers worse off. Instead, the Consumer Finance Protection Bureau should focus its efforts on preventing abuse and empowering low-income communities to access fair credit with reasonable interest rates.
Removing the very rules that protect vulnerable people does nothing to help communities in need or advance consumer protection.