Center for Responsible Lending
The phrase “It ain’t over until it’s over” was first made famous by the late New York Yankees pitcher Yogi Berra. It was one of many enduring Yogi-isms – humorous phrases that were often grammatically-challenged. Even so, people usually understood what he meant to convey.
Unfortunately, some who walk the halls on Capitol Hill seem to ignore this specific Yogi-ism. For them, even when legislation or rules are enacted, it’s never over.
Just ask the payday lenders and their supporters. Their relentless determination reveals values that ignore the financial exploitation of people with the fewest resources to derive billion-dollar profits. Even after consumer laws and regulations are enacted – following years of extensive research and a growing momentum by advocates and consumers alike – they still steadfastly work to overturn popular reforms aimed at stopping the debt trap.
The latest illustration of these misguided attacks is the payday lenders’ effort to undo the Consumer Financial Protection Bureau’s small-dollar loan rule that addresses the worst harms of 300 percent or higher interest on payday and car-title loans. Finalized this October and scheduled to take effect in 2019, in the middle of the holiday season, payday lenders have launched an effort to end the rule before it begins. Five bipartisan lawmakers in the House of Representatives introduced a measure on Dec. 1 that would accomplish two specific goals: Stop CFPB’s rule from going into effect that would stop the harms of unaffordable payday loans; and deny all federal agencies – including the CFPB – from pursing a similar rule in the future.
Known as H.J. Resolution 122, its chief sponsor is Florida Congressman Dennis Ross, who represents a state where the average payday loan interest rate is 304 percent. He is aided by another Florida colleague, Rep. Alcee Hastings from the Ft. Lauderdale area, a long-time supporter of payday lenders. Other Members of Congress joining this payday rule repeal effort hail from Georgia, Minnesota, Ohio and Texas. These Congressmen could secure a floor vote on the measure before the congressional holiday recess begins.
Among these states, Georgia is the only one with a state law that keeps payday lenders out of the Peach State. Georgia consumers and others living in 14 additional states and the District of Columbia all have state protections that limit interest rates to 36 percent or lower. As a result, these states collectively save an estimated $2.2 billion each year.
In the other 36 states where payday lenders can legally charge triple-digit rates as high as 600 percent or more, the typical $350 payday loan that is borrowed for two weeks costs $458 in fees.
Research released earlier this year by the Center for Responsible Lending found that each year, these same states’ payday borrowers end up paying $4.1 billion in annual fees.
Similarly, this report found that in the 23 states where car-title loans are sold, borrowers of this predatory loan pay another $3.9 billion in fees each year. As vehicles are used as collateral on the loans, repossession – not repayment – is a common result that can jeopardize employment and more.
When fees are totaled on these two types of loans, $8 billion in fees is paid every year by consumers with average incomes of only $25,000. The proposed resolution would allow this abusive product to be sold across the country without restrictions.
For Texas Congressman Henry Cuellar, who has termed his district “as one of the poorest in the country” he sees payday lending providing a market-based need for consumers who lack access to full-service banking. But the poverty that he sees is likely worsened by the typical payday loan rate of 662 percent that the Lone Star State’s consumers are charged. Payday lenders are associated with harms such as increased likelihood of bankruptcy and delinquency on other bills such as rent and medical expenses.
When the long-awaited rule was announced, the CFPB made clear that the rule was meant to stop the payday debt trap from plaguing communities across the country. For the first time, federal financial safeguards were put in place to prevent payday lenders from setting up all borrowers to eventually fail. Previously, under the Military Lending Act, active-duty servicemembers and their families were protected.
It seems somehow un-American for the working poor to be forced to accept triple-digit debt traps when they only need a few hundred dollars. Ample data exists that clearly proves how triple-digit interest causes debt traps that leave consumers worse off financially. With every renewal of a payday or car-title loan, borrowers’ financial stress increases as the costly payments grow and often lead to delinquency on other bills and/or lost checking accounts.
For consumer advocates, there’s a name for it: predatory lending.
“The line in the sand is clear – you’re either siding with payday lenders or you’re siding with consumers,” said Yana Miles, senior legislative counsel at the Center for Responsible Lending. “Unfortunately, for these members who introduced this Congressional Review Act resolution, their allegiance is to the payday lenders.”
Charlene Crowell is the communications deputy director with the Center for Responsible Lending. She can be reached at email@example.com.