From CFED: The CFPB Released a Plan to Regulate Predatory Lenders a Year Ago, but Consumers are Still Waiting for Action

By Emanuel Nieves on 03/21/2016 @ 11:00 AM

Tags: Federal Policy, Economic Inclusion

Predatory lending strips wealth from low-income households and can trap borrowers in a crushing cycle of debt. So exactly one year ago this Saturday, the Consumer Financial Protection Bureau (CFPB) released an outline of proposals to regulate payday and other forms of small-dollar lending. But so far, the Bureau has failed to take action to turn this outline into an actual rule — and consumers have been paying the price. In fact, since last March, consumers of predatory payday and auto-title loans have lost over $8 billion of their hard-earned money — enough to pay off the credit card debt of over a half a million American households.

Given the amount of wealth stripped from consumers in just one year, why hasn’t the CFPB promulgated rules that would end the debt trap perpetuated by small-dollar lending? The answer to that question, along with when the CFPB will eventually release their rules, is a bit of a guessing game at this point. But one of the biggest factors responsible for the Bureau’s delay has been the continuous and intense pushback it has received from the payday lending industry. Unfortunately, Congress now wants make the delay even longer by putting forth legislation to block the CFPB from protecting consumers against payday lending.

While attacks on the Bureau by the industry and members of Congress is nothing new, what is new — and even more surprising — is that attacks to delay the CFPB’s work to regulate payday lending are now coming from members you’d least expect, such as Rep. Debbie Wasserman Schultz (D-FL), Chair of the Democratic National Committee.

Consumers of payday and auto-title loans deserve the strongest of federal protections possible — now. At the very least, consumers of these predatory products, like Florida residents M. Figueroa and James, who took out payday loans to cover unexpected financial emergencies only to find themselves stuck in a cycle of debt, deserve to have their voices and experiences heard.

The efforts being led Rep. Wasserman Schultz, who is joined by Rep. Alcee Hastings (D-FL) and ten other members of Florida’s congressional delegation, have focused on H.R. 4018, the Consumer Protection and Choice Act. Although the bill’s title indicates otherwise, H.R. 4018 does not take the consumer voice or the harm caused by predatory lending into consideration. Instead, it considers the voice and concerns of an industry intent on undercutting the CFPB’s ability to protect consumers, so it can continue to thrive while placing vulnerable borrowers in a near endless cycle of financial insecurity.

H.R. 4018 would cause severe harm to consumers of small-dollar loans in Florida and nationwide. The bill would place a two-year hold on the CFPB’s ability to protect consumers against predatory payday lending, while also exempting from federal regulation any state that adopts Florida’s payday debt trap model, which according to the Center for Responsible Lending strips $312 million in fees from financially vulnerable Floridians each year.

Vocal opponents of the CFPB’s work to regulate the payday lending industry have long argued that the Bureau’s efforts threaten to eliminate much-needed credit in a number of underserved communities. Given the current state of financial insecurity in American households, we agree that having access to short-term credit is important, especially in underserved communities. But we don’t believe that that access should come in the form of a toxic financial product (as Rep. Maxine Waters (D-CA) recently said at a payday hearing), that allows lenders to charge consumers as much as 1,955% APR in interest for a loan that will likely lead them to being in debt for almost half a year.

Consumers have waited long enough for the CFPB to act, and they’ve lost billions of dollars in the process. Consumers need federal protections now — not another two years down the road. They need strong regulations that take into account a consumer’s ability repay and greatly limit the ability of lenders (including online lenders) to continue skirting state consumer protection laws. Congress should let the CFPB finish the job it started to end the payday debt trap.