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Statement by U.S. PIRG Consumer Advocate Mike Litt:
“The Consumer Financial Protection Bureau (Consumer Bureau) took the first step toward ending the debt trap by finalizing new consumer protections for loans where consumers must repay all or most of the debt at once. These products include shorter-term loans such as payday and auto title loans, and longer-term loans with balloon payments.
Our own analysis last year of written complaints about payday loans to the Consumer Bureau found significant evidence of the major problem with payday loans: borrowers can’t afford these loans and end up trapped in a cycle of debt. Ninety-one percent (91%) of written complaints were related to unaffordability.
In particular, we commend the Consumer Bureau for its thoughtful and systemic 5 year, data-driven approach to the problem and its decision to take the first step to rein in short-term, one payment loans by requiring that consumers must demonstrate an ability to repay the loan.
Second, we strongly commend the Consumer Bureau’s pronouncement in the rule that it intends the rule to be a floor of protection and that states are “free” to do more to protect their citizens from predatory loans.
The CFPB is prohibited by the Dodd-Frank Act to set interest rate caps, but its rule states: “The Bureau recognizes that States may wish to prevent more harms than are prevented by this rule, and they are free to do so.”
Already, 15 states and DC effectively ban high-cost lending through 36% interest rate caps. We pledge to work with those states to defend their laws and work with other states to join them. We will also work with the Consumer Bureau on next steps to finish a rule for reining in longer-term high-cost predatory loans.”
U.S. PIRG is the federation of state Public Interest Research Groups. PIRGs are non-profit, non-partisan public interest advocacy organizations that stand up to powerful interests whenever they threaten our health and safety, our financial security, or our right to fully participate in our democratic society. On the web at www.uspirg.org.
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