Consumers in states that are burdened by predatory payday lending are reeling from today’s announcement that the Consumer Financial Protection Bureau (CFPB) plans to gut its 2017 Payday Lending rule. Fortunately, Colorado recently put in place the most effective protection, a 36% cap on annual interest rates for payday loans, because of the recent overwhelming passage of Proposition 111, by Colorado residents.
This proposal is yet another of the many anti-consumer actions taken by the current administration to support the interest of predatory payday lenders over the interest of America’s consumers. Our state, which recognizes the danger of the debt trap, has in place the strongest law possible to protect against predatory lending—a usury cap,” a fact confirmed in my capacity as the state chair of the Colorado chapter of the National Association of Consumer advocates. In states with no protection against the debt trap, payday and car title lenders ensnare people in loans with 300% or 400% interest, leading to significant financial distress. It is vital that Colorado legislators continue to support our 36% usury cap, as this is the most effective and efficient available deterrent to predatory lending.
The CFPB is not legally authorized to cap interest rates, so the 2017 rule was designed to protect consumers by requiring lenders to make affordable loans – loans that borrowers can pay back without taking out another loan in order to cover living expenses. This ability-to-repay standard was expected to reduce the harms of predatory lending across the nation overall by disrupting the payday and car title lending business model, which depends on trapping borrowers in cycles of unaffordable debt.
Sadly, the ability-to-repay provision is now under attack, as the CFPB under the current administration, acting in payday lenders’ interest, moves to undo protections built on 5 years of research, data collection, field hearings, and public comments, even though no new evidence supporting repealing the rule has come to light.
Payday and car title lenders have a long history of exploiting loopholes where they can find them and creating more loopholes if they can. State usury caps prevent this exploitation. The rate cap also ensures that borrowers are protected against the harms of these high-cost loans regardless of whether they are structured as short-term or long-term loans.
Consumer advocates in Colorado are proud to be among the 16 states plus D.C. that offer our residents the strongest protections against predatory payday lending. We encourage and support ongoing efforts in states around the country and at the federal level to defend the CFPB rule in its original form and put additional protections in place that will eliminate, once-and-for-all, the scourge of predatory payday and car title lending.
