WASHINGTON – The Pew Charitable Trusts have expressed disappointment with today’s decision by the Consumer Financial Protection Bureau (CFPB) to rescind its 2017 payday loan rule, saying the move could leave millions of dollars Americans at high risk of getting trapped in a cycle of debt.
The 2017 rule was based on years of extensive research and was carefully designed to limit harmful lending practices while keeping credit available to consumers. He put in place guarantees for single-payment loans and encouraged lenders to come up with affordable small-installment loans that Pew’s research found could save millions of borrowers billions of dollars each year. .
The new rule adopted today by the CFPB eliminates the central consumer protection measure of the 2017 rule, its repayment capacity provision, which reduced unaffordable loan terms by forcing lenders to determine a borrower’s capacity. to repay the loans in one go.
Alex Horowitz, senior researcher for Pew’s consumer finance project, said of the CFPB announcement:
“By eliminating repayment capacity protections, CFPB is making a serious mistake that exposes the 12 million Americans who use payday loans each year to unaffordable payments at annual interest rates of almost 400% on average .
“The bureau’s decision to repeal its 2017 rule ignores the basic rationale for the rule and does not refute or reinterpret much of the research behind it. The bureau’s argument for overturning the rule and authorizing loans with a long history of consumer default is unfounded.
“The 2017 rule limited small loans with lump sum payments and encouraged traditional lenders to offer affordable installment loans.
“The 2017 rule worked. Lenders were starting to make changes before it even officially took effect, safer credit was already starting to flow in, and bad practices were starting to fade away. Today’s action puts all of that at risk.
“Despite CFPB abandoning these essential consumer guarantees, banks, credit unions and responsible lenders should reject lump sum payments and instead offer installment loans to consumers on affordable terms.”
More information on the regulatory landscape for small loans can be found at pewtrusts.org/petits-prêts.