Advocates Say Rule Still Needs Work, Strengthening
EAU CLAIRE – Today, the federal Consumer Financial Protection Bureau (CFPB) unveiled a proposal for a new national rule on payday and car title lending that has the potential to protect Wisconsinites from predatory high-interest loans. At a press conference in Eau Claire, consumer advocates joined faith and community leaders to highlight the harms of payday lending in Wisconsin. WISPIRG, the interfaith organization JONAH, and Citizen Action also underlined the importance of a strong federal rule to rein in abusive lending practices, and urged the CFPB to prevent loopholes from weakening the rule.
“The CFPB’s proposed rule is a big step in the right direction, but we have to do more to ensure this rule truly protects consumers from the harms of predatory high-interest loans,” said Peter Skopec, WISPIRG Director. “Fortunately, this is just the starting point, and it’s a strong one. Advocates will be working hard over the next few months to help the CFPB understand the importance of closing loopholes in what is otherwise a well-thought out proposal. In doing so, they can shut the debt trap once and for all.”
The proposed rule includes a crucial responsible lending provision that requires lenders to determine whether a borrower is likely to be able to pay back a loan. And while the CFPB rule does create this affordability standard, it also allows for some exemptions that will make it harder to meaningfully reduce the harms of predatory lending, including:
- A loophole that allows lenders to determine that their seizure of payments in the past means that a borrower has a true ability to repay going forward. This is exemption is problematic because predatory lenders routinely withdraw repayment funds from borrowers’ bank accounts without leaving them with enough money to cover basic living expenses.
- A loophole that exempts six high‐cost payday loans from the ability‐to‐repay requirement altogether. Six unaffordable loans are six too many, as even a single unaffordable loan can create a cascade of financial consequences for borrowers.
High-interest lenders’ business model relies on borrowers’ inability to repay an initial small-dollar loan and then trapping consumers in a spiral of growing debt, piled-on fees and skyrocketing interest rates. The average Wisconsin payday loan of $320 carries 589 percent annual interest and comes with fees and charges of $866. The CFPB is not authorized to cap loan interest rates outright.
The CFPB’s rule will be finalized in approximately 90 days. In the meantime, consumers are encouraged to comment and suggest changes to the final rule that will close loopholes and remove exemptions. Comments can be offered here.
The Wisconsin Public Interest Research Group is a non-profit, non-partisan public interest advocacy organization that stands up to powerful interests whenever they threaten our health and safety, our financial security, or our right to fully participate in our democratic society.