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Dems demand 'strongest rules possible' for payday lenders

Dems demand 'strongest rules possible' for payday lenders

Senate Democrats are calling on the Consumer Financial Protection Bureau (CFPB) to crack down on predatory lending with the "strongest rules possible."

A group of 32 senators led by Sens. Jeff MerkleyJeff MerkleySenate Democrats leery of nixing filibuster Biden and the new Congress must protect Americans from utility shutoffs Flags, signs and other items left behind in Capitol riot to be preserved as historical artifacts MORE (D-Ore.), Dick DurbinDick DurbinOfficials brace for second Trump impeachment trial Sunday shows - Capital locked down ahead of Biden's inauguration Durbin says he won't whip votes for Trump's second impeachment trial MORE (D-Ill.) and Chris CoonsChris Andrew CoonsSenate Democrats leery of nixing filibuster Security concerns mount ahead of Biden inauguration Trump impeachment collides with Biden's agenda MORE (D-Del.), sent at letter to CFPB Director Richard Cordray on Thursday asking for the final rules to focus on meaningful ability-to-pay standards for small-dollar, short-term loans to prevent lenders from issuing loans with astronomical interest rates and fees that low-income customers are unlikely to be able to repay.

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“Predatory lenders should not be able to continue unfair, deceptive, and abusive acts or practices that are designed to trap borrowers in a cycle of debt,” the senators’ letter said. “A CFPB study found that 75 percent of loan fees on payday loans came from consumers with more than 10 transactions over a twelve-month period. This is a business model rooted in preying on individuals and families that have no ability to repay and the CFPB has a critical opportunity to protect consumers by issuing strong rules.”

The CFPB outlined a framework for the rules it's considering in March, which mapped out two sets of rules: debt trap prevention or debt trap protection. Lenders would be able to choose which set of rules to follow.

Under the prevention rules, lenders would have to verify a consumer’s income, debt and borrowing history when determining his or her ability to repay a loan in full and still cover their basic living expenses and loan payments.

Under the debt trap protection rules, lenders would not be required to do an upfront analysis of a borrower’s ability to repay a loan, but all loans would be limited to $500 with one finance charge and lenders would be prohibited from holding a vehicle title as collateral on a loan.