Congress Blog

Americans can't afford Trump administration protecting payday-lending debt traps

The views expressed by contributors are their own and not the view of The Hill

In the wake of the financial crisis, the Consumer Financial Protection Bureau (CFPB) was established to stop predatory financial activity central to the collapse. For years, the CFPB has stood up to financial predators, holding companies acting in bad faith accountable for wrongdoing and returning $12 billion of ill-gotten profits to consumers. When the CFPB saw predatory payday and auto title lenders targeting the poorest Americans with high-interest debt traps, it studied the issue for five years and proposed a new consumer protection rule to end the predation. Today, the Trump administration is attempting to abandon those efforts and to allow payday lenders to continue to profit off of debt and misery while charging outrageously high interest rates.

Many payday lenders advertise manageable, short-term loans while knowing that their products lock in the average consumer for 11 months and that most consumers pay more in fees than they borrowed in the first place. This is all possible because interest rates approach 400 percent, and by the time consumers realize they can't pay back what they've already borrowed, lenders are eager to continue the cycle with another loan. Most lenders succeed when their customers are able to repay their loans. In contrast, payday and auto title lenders have created an industry that succeeds when their borrowers fail to repay.

As chairman of the Oversight Subcommittee on Economic and Consumer Policy, I recently held a hearing on payday-lending and in preparing for it, I learned the troubling story of Billie A. from Springfield, Ill., who is disabled and on a fixed income. When her grandchild was born, she took out a title loan for $1,000 to help pay for some additional expenses. After a year, she had paid $1,500 and still owed $800. She wasn't able to pay for basic expenses, turned to food banks and moved into her car. The lender never asked about other debts, or if she could repay. But the lender had her personal bank information, so it was able to draw from her account and when there wasn't enough to make her payments, it could charge her another $25 fee.

Billie's described her situation as, "being like a hamster on one of those wheels. I just keep running and never get anywhere. It's scary to tell my story, but someone's got to tell people what the payday lending industry is doing to us. They are profiting off the backs of poor people. It's predatory, plain and simple, and it's got to stop."

The CFPB spent five years researching the payday-lending industry, gathering substantial evidence demonstrating the need for action and the best paths forward to protect Billie and millions of people like her. Based on this extensive work, the CFPB issued the 2017 Payday Lending Rule, a reform plan to stop the industry's debt traps by simply requiring payday, title, and other high-cost installment lenders to determine upfront whether people could afford to repay loans before making them. Through establishing this standard, the CFPB would drive the payday-lending industry to abandon a business model dependent on its customers being unable to afford their product. Notably, the rule also had public support; according to polling conducted on behalf of the Center for Responsible Lending, 73 percent of Americans support requiring payday lenders to check a borrower's ability to repay before lending money, including 74 percent of Democrats, 72 percent of Republicans, and 77 percent of Independents.

Today, that extensively-researched, widely-popular 2017 Payday Lending Rule is imperiled. Rather than serve the consumers they're responsible for protecting, Trump administration officials leading the CFPB are working on behalf of the industry they're charged with regulating. When the payday-lending industry sued the CFPB to prevent the regulation from going into effect, the agency didn't defend itself; instead, it sided with payday-lenders in a joint motion. After delaying the implementation of the rule through this lawsuit, the Trump CFPB then continued with its effort to prevent the 2017 Payday Lending Rule from ever going into effect at all through a new rule which would repeal it entirely.

The CFPB was designed to protect American consumers from financial harm, not expose them to it. As chairman of the House Subcommittee with direct oversight over the CFPB, I will continue to work with my colleagues to shine a spotlight on predatory practices that threaten economic prosperity, financial health, and consumer safety. After 2008, we simply can't afford not to.

Krishnamoorthi is chairman of the Oversight Subcommittee on Economic and Consumer Policy.

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