The Payday and Car Title Lending Rule provides consumer protections against predatory practices trapping consumers in high-interest loans.
Thirty-five states across the country allow companies to offer debt trap payday loans, generally less than $500, to borrowers via a borrower’s bank account or through taking a borrower’s car title. Payday and car title loans are marketed as one-time ‘quick fix’ consumer loans, however, repaying these loans is expensive, with an average annual interest rate of more than 390 percent. If that sounds steep, it is: fifteen states and the District of Columbia ban them with usury laws. These payday and car title loans are structured so that consumers are unable to repay in time and are forced to refinance by taking out another loan. Many consumers continue this cycle of debt by being forced to renew their loans for months.
About 80 percent of payday loans are taken out to repay previous loans, and according to the U.S. Consumer Financial Protection Bureau’s (CFPB) data, more than 75 percent of the profits of payday lenders are from borrowers stuck in cycles of more than 10 loans a year. This debt trap drains billions of dollars annually from low-income consumers and leads to a cascade of financial consequences, including overdraft fees, lost bank accounts, repossessed cars, delinquency on other bills, and even bankruptcy. Congress banned lenders from preying on active duty military service members. Unfortunately, they left everyone else as easy prey.
After years of public input and extensive research, including over one million public comments submitted in 2016, the CFPB announced a rule in October to rein in predatory loan practices by ensuring the lenders have to offer affordable loans and capping how often lenders can take money from their customer’s bank account. With H.J. Res. 122, congress would repeal this rule and prohibit the CFPB from putting in place similar protections in the future.
The CFPB’s rule establishes an ability-to-repay principle, ensuring lenders must take into consideration a borrower’s income and expenses, for short-term payday and car title loans (loans of 45 days or less). It also puts limits on how often lenders can tap into a borrower’s bank account. These protections would limit the ability of payday and car title lenders to prey on low-income Americans and significantly reduce the number of borrowers trapped in a long-term debt trap.
The Trump administration and congressional lawmakers leading the effort to prevent or delay the CFPB’s rule from taking effect have deep ties to the payday and title loan industry. Despite only serving six years in Congress, current director of the U.S. Office of Management and Budget Mick Mulvaney, who also is President Donald Trump’s designee for CFPB acting director, received more than $60,000 in campaign contributions from the payday loan industry. Mulvaney consistently called for the elimination of the bureau during his short congressional tenure.
In total, all six cosponsors of H.J. Res. 122 have received nearly half a million dollars in campaign contributions from payday lenders. U.S. Rep. Alcee Hastings (D-Fla.) has accepted the most, $167,000. In return, he has been one of the industry’s most consistent cheerleaders, sponsoring numerous bills and actions to prop up payday and car title lenders in their fight against the CFPB.
In addition, payday lenders have given U.S. Sen. Lindsay Graham (R-S.C.), the lead sponsor of the Senate resolution overturning the rule, more than $35,000 in campaign contributions.
|U.S. Representative||Total Campaign Contributions from Payday Lenders|
|Alcee Hastings (D-Fla.)||$166,950|
|Steve Stivers (R-Ohio)||$143,575|
|Tom Graves (R-Ga.)||$60,900|
|Dennis Ross (R-Fla.)||$49,600|
|Henry Cuellar (D-Texas)||$45,700|
|Collin Peterson (D-Minn.)||$8,000|
Anjali Cadambi, Stop The Debt Trap Campaign, Anjali.Cadambi@berlinrosen.com, (503) 984-4020
‘Lenny the Loan Shark’ Leads Opposition to Payday Rule Repeal
Roll Call: March 29, 2018
Lindsay Graham Goes to Bat for Payday Lenders in Senate (After They Gave Him More Than $35K)
Allied Progress: March 23, 2018