By Marisabel Torres, Senior Policy Analyst, Economic Policy Project, UnidosUS
We’re happy to be sharing some good news this week. UnidosUS is joining our advocacy partners in celebrating the Consumer Financial Protection Bureau (CFPB)’s release of their final payday rule!
Payday loans are loans in which the lender repays itself directly from the borrower’s bank account on the borrower’s payday. These loans are typically due in one lump sum. With a car title loan, the lender requires the power to immediately seize and sell the car as collateral, and uses this power to coerce payment.
The CFPB rule, which covers payday, vehicle title, and certain high-cost installment loans, was released on October 5, 2017. It is the culmination of years of advocacy and coalition building around curbing predatory lending that has targeted low-to-moderate income consumers who need access to small-dollar credit.
UnidosUS, its Affiliate network, and the Latino community have long-supported consumer protections against this abusive lending practice. The Latino community in particular has demonstrated its strong support for a payday rule at UnidosUS Annual Conferences, and during our payday postcard campaign. We contributed more than 7,000 signatures from Latino consumers across the country who wanted to see an end to the payday debt traps that were draining financial resources from our communities.
The final rule covers short-term payday loans (requiring repayment within 45 days or less) and car title loans. These have been among the worst products for consumers seeking small-dollar credit, trapping borrowers with 300%+ interest and high fees.
The rule will require that lenders make sure that borrowers have the ability to repay their loans based on consideration of their income and expenses, for short‐term payday and car title loans. This may seem like common sense, but up until now, there hasn’t been a national standard of this principle for payday lenders. In fact, the payday industry has had little incentive to make sure their loans were affordable, which allowed them to keep borrowers in this debt trap for months.
The rule isn’t perfect—it does contain exemptions, and leaves longer-term loans for future rule-making—but it is a good start. We expect payday lenders to immediately push Congress to file a repeal of the rule under the Congressional Review Act, which could undo the rule with a simple majority vote in both chambers and prevent the CFPB from future rulemakings addressing these harmful products. UnidosUS will continue to fight for these hard-won protections and advocate for a federal 36% interest rate cap applicable to all Americans.