CRC Executive Director Speaks at CFPB Field Hearing on Payday Loans
RULES WILL ADDRESS PERSISTENT PROBLEMS THOUGH POTENTIAL LOOPHOLES REMAIN
March 26, 2015, Richmond, VA—Paulina Gonzalez, executive director of the California Reinvestment Coalition(CRC), spoke earlier today at a CFPB field hearing. During the hearing, the CFPB previewed the proposed rules it is considering for payday, car title, deposit advance and certain high-cost installment and open-end loans.
Editor’s note: Did you miss the CFPB hearing? Check out our blog to see 8 important takeaways from the hearing.
Gonzalez released the following statement:
“The California Reinvestment Coalition applauds the CFPB’s proposal to regulate high-cost payday and other predatory loans like auto-title loans that harm our neighbors and communities. For years, our coalition members have advocated for state-level legislative payday lending reforms in California. But every year, industry lobbyists and campaign contributions stymied proposals that could have helped consumers. As we reached a stalemate at the state Capitol, we continued working with major California cities like Sacramento, San Jose,Fresno, and Long Beach to pass local ordinances to address the over-proliferation of payday loan stores invulnerable neighborhoods. We will support and defend the CFPB’s proposals to establish strong, uniform protections for consumers in California and across the country.
The preview that the CFPB has given us shows much needed relief for borrowers who under California law would be trapped in endless cycles of debt, lose possession of their way to work, and whose personal bank accounts could be raided by lenders, causing countless overdraft and insufficient fund fees. However, we believe that the CFPB can and should do more to ensure that these loans help provide a bridge for families to meet their financial needs—not create greater financial hardships that result in difficult choices such as keeping the lights on or re-borrowing another high-cost loan. CRC strongly supports requiring all lenders to both assess a prospective borrower’s ability to repay both short and long-term loans as well as abide by standards that make sure borrowers will not be trapped in a long debt spiral.
Her complete testimony is included below:
CFPB Field Hearing Testimony of Paulina Gonzalez
In California, the already high level of payday lending is not growing, its usage is remaining flat, but we are seeing an increase in unregulated installment loans and auto title loans.
In 2013, payday lenders made more than 12 million small dollar pay day loans to 2 million borrowers in California totaling more than $3 billion in loans.
From 2012-2013, the number of unsecured loans valued above $2,500 grew in the range of 51% (for loan amounts of $2,500 to $4,999) to 104% (loans amounts for $5,000 to $9,999). In the same time period, the total number of auto title loans above $2,500 increased between 41%-55%.
One of CRC’s members, shared this story with us last week that illustrates the harm of payday lending.
Marco* had taken a payday loan from Advance America in Santa Cruz, CA for $300. He was unable to pay the loan back, and it was sold to a collection agency–PMS, a subsidiary of Vantage Point.
A PMS representative told Marco he was from the “financial crime unit.”
He threatened Marco with criminal prosecution if he did not pay the alleged debt of $880.
Due to the threat, Marco signed an authorization allowing PMS to automatically withdraw money from his Bank of America account on a bi-weekly basis, and PMS eventually withdrew a total of $538.85.
Advance America had made a loan to Marco he could not pay back, that had not been underwritten, and then sold it to a collection agency that used threatening and illegal tactics to collect more than what Marco had originally borrowed.
Ultimately negatively affecting his credit.
This consumer story, and the growing use of auto title and installment loans in California, illustrate the reasons that we support the CFPB’s proposed approach to require all lenders, including payday lenders and longer-term installment and auto title lenders to either assess a prospective borrower’s ability to repay the loan offered or to provide a more restricted loan that limits how long a person is trapped in debt.
We believe this is a strong starting point for the bureau and support the bureau’s proposal. As always, there are particular things that can be improved, and we support the suggestions to strengthen the proposal given the industry’s track record of evading the law. In particular, the ability to repay protections must take into account both a borrower’s income and expenses. As we move forward we definitely want to ensure that the expansiveness and strength of the proposal announced by the bureau today is not eroded.