In Birthday Message to CFPB, CRC and Congresswoman Zoe Lofgren Call for Strong Action against Predatory Lending Abuses
July 16 2015, San Jose, California– Five years after the enactment of the Wall Street Reform Act which created the Consumer Financial Protection Bureau, the CFPB is working on rules to curb the abuses of the payday, car title and installment lending industry. As it takes up that momentous task, the California Reinvestment Coalition(CRC) and California Democratic Congressional Delegation Chair Representative Zoe Lofgren sent the Bureau a message of strong encouragement today.
Statement from Representative Lofgren:“The Consumer Financial Protection Bureau is a unique federal agency, focused on making financial markets and products accessible and upfront for Americans. In the three years since it was established, the CFPB has helped countless families make sense of a wide variety of financial products – from navigating student loans, to getting a mortgage, opening a new credit card, and more. As it enters its fourth year, I hope the CFPB focuses on reforming the predatory payday lending industry and ending the dangerous payday loan debt trap by creating strong consumer protections and encouraging innovative alternatives for consumers who need short-term, emergency loans to make ends meet.”
“Too many California consumers fall into the payday loan debt trap, and have their income and savings stripped away through the unaffordable cycle of debt. An ability to repay requirement is a fundamental cornerstone of responsible lending and a crucial element of this rulemaking,” explains Paulina Gonzalez, executive director of CRC. “For the first time, payday lenders would be required to conduct business the same way we expect responsible banks and mortgage lenders to – by underwriting to ensure that borrowers can afford to repay their debt and still cover basic necessities like rent and food.”
Representative Lofgren is one of 101 congressional signers (68 House members and 33 Senators, including 14California Representatives and both Senators) of letters urging the CFPB to proceed with rules strong and broad enough to end the abusive practices of payday, car-title and other high-cost consumer lenders. A strong CFPB rule will keep Americans from getting trapped in the cycle of debt that is too often the result of these high-cost loans.
Payday lenders claim to be offering a one-time financial quick fix. In truth, their business model is to make loans they know cannot be paid back in full and on time – without requiring the borrower to take out another loan to cover basic necessities like food and rent. In fact, 75 percent of all fees paid to payday lenders come from borrowers who take out more than 10 loans in a year, and three-quarters of all payday loans are taken out within two weeks of a previous loan. One third of the time, when borrowers repay these loans, they overdraw their checking accounts, incurring yet more loan charges.
Under the terms of the Dodd-Frank financial reform law of 2010, the CFPB has the authority to regulate small-dollar consumer loans. The agency released a broad outline of its plans in March, and is expected to come outwith a formal proposal later this year. To fight back, the payday lending industry will both attack the bureau itself, and attempt to weaken the rules.
A new poll conducted in early July by Lake Research and commissioned by Americans for Financial Reform and the Center for Responsible Lending underlines public concern about payday abuses, and strong support for regulation. By more than a 3:1 margin, the survey shows, voters regard payday loans as predatory,rejecting a counterargument presenting them as an important resource.
Community organizations, elected officials, consumers and other stakeholders are mobilizing strong support in California to win and defend strong CFPB rules and defeat any attacks by the industry