California Attorney General Xavier Becerra joined a coalition of 25 attorneys general in submitting a comment letter opposing a proposal by the federal Consumer Financial Protection Bureau (CFPB) to formally delay implementation of 2017 regulations governing payday, vehicle title, and certain high-cost installment loans (Payday Rule). The Payday Rule protects consumers from the worst harms associated with short-term payday lending. It requires underwriters to ensure that borrowers have the ability to repay their loans and prohibits lenders from employing abusive tactics while seeking repayment. The Rule safeguards borrowers from predatory payday lenders who often target borrowers of color, people with disabilities, and low-income populations. The CFPB proposal would delay compliance requirements of the Payday Rule until November 20, 2020, putting hundreds of thousands of borrowers at risk of unnecessary fees and exploitation by un scrupulous lenders with limited oversight for another year – nearly two years after the original compliance date.
“The Trump political appointees at the Consumer Financial Protection Bureau have forgotten the essential mission of their agency – to protect consumers,” said Attorney General Becerra. “The CFPB’s proposed rule change would allow payday lenders to target and take advantage of our nation’s most vulnerable borrowers rather than issue loans based on a person’s ability to pay. The CFPB must get back to the business of safeguarding consumers; shady lenders don’t need the help.”
In the letter, the Attorneys General assert that the CFPB does not have a legal basis for further delaying the implementation of the 2017 Payday Rule. The Attorneys General, who share authority with the CFPB to enforce the Rule, emphasize that the delay would leave their states’ consumers unprotected from many types of exploitative loans, and could embolden lenders who seek to circumvent the laws of those states with strong protections against such loans.
According to the CFPB’s own undisputed findings, issuing loans without regard to the consumer’s ability to repay causes substantial harm to financially vulnerable consumers. Delay of the Payday Rule would allow continued harm to consumers. In its research, the CFPB found:
- Consumers who use short-term payday and vehicle title loans tend to come from lower- or moderate-income households, and are likely in financial difficulty;
- The lending model is dependent upon re-borrowing, or back to back loans within a short period of paying off a previous loan. The CFPB found that 80 percent of the loans were followed by another within 50 days;
- These high-risk loans have a high rate of default and are subject to aggressive debt collection efforts;
- Almost one in five auto title loan sequences ends with a customers’ vehicle – often the only vehicle per household – being repossessed;
- Attempts by lenders to debit payments from a consumer’s checking account can add to steep overdraft fees or fails. Borrowers incur an average of $185 in bank penalty fees in addition to fees by the lender, with many accounts closed as a result; and
- Consumers suffer collateral consequences, such as failure to meet other financial obligations.
In 2017 alone, according to California’s Department of Business Oversight, borrowers in the state paid more than $436 million in fees, with over 70 percent of this amount coming from hardworking people who took out seven or more loans. In addition, 52 percent of payday loan customers in 2017 had average annual incomes of $30,000 or less.
A copy of the letter can be found here.
This article was released by the California Attorney General’s Office.