Historic Payday Loan Protections Defy Congressional Threat
CHICAGO, IL – In a victory for consumers and their advocates, the clock expired on Congressional Review Act (CRA) resolutions—S.J. Res 56 and H.J. Res 122—which were poised to repeal the historic Consumer Financial Protection Bureau’s (Consumer Bureau) payday and car title lending rule. The Consumer Bureau rule, finalized in October, establishes common-sense consumer protections on predatory payday and title loans, such as requiring lenders to verify a borrower’s ability to repay before making the loan.
Separate from the Congressional action, the new leadership at the Consumer Bureau, appointed by the Trump Administration, has threatened to “reconsider” the rule. Consumers and their advocates are urging the Consumer Bureau to keep the rule, effective summer 2019, and to establish further protections for borrowers, such as protections applicable to longer-term installment loans.
“This historic victory is the culmination of years of hard work by consumer advocates. Hundreds of thousands of consumers in Illinois have turned to payday loans, but our laws do not protect them from getting caught in a debt trap – a cycle of repeat borrowing that extends far beyond a single payday,” said Brent Adams, Senior Vice President of Policy and Communication for Woodstock Institute. Adams wrote the State’s first payday loan law in 2005, and regulated the industry as Secretary of Financial and Professional Regulation from 2009-2012. Adams went on to say, “These new protections will require payday lenders to do what they should have been doing all along – determining whether the borrower can actually afford to pay back the loan without forgoing basic living expenses and major financial obligations like rent, food, and electricity.”
As written, the historic payday lending rule will result in fewer families falling into financial ruin. At the heart of the rule is the common sense principle of ability-to-repay based on a borrower’s income and expenses, which ensures the borrower can repay the loan without reborrowing and without defaulting on other expenses—that is, without getting caught in a debt trap. An affordable loan is one a borrower can reasonably be expected to pay back without re-borrowing or going without the basic necessities of life – like heat or rent money. A 2017 poll of likely voters shows more than 70 percent of Republicans, Independents, and Democrats support this idea. In 2016, the “red state” of South Dakota voted to ban payday lending by a greater margin than it voted for President Trump (75 percent vs. 61.5 percent).
The legislative tool used to challenge the rule—the Congressional Review Act—allows a simple majority vote in Congress to undo long-considered federal regulatory safeguards without public hearings or the option to filibuster. The CRA had been used only once before President Trump took office and began his assault on consumer protections; since then, it has been applied to repeal various rules. In this case, neither chamber brought the payday rule resolutions to a vote during the limited time allotted for a challenge, and the important rule was not repealed.
In Illinois alone, predatory payday and title lending cost families over half a billion dollars per year in abusive fees and usurious rates. Research indicates four of every five loans are re-borrowed within the month because most borrowers—like those in Illinois who make an average of less than $30,000 a year—cannot afford to repay loans at an average 323 annual percentage rate. A group of 36 Illinois organizations sent letters in March urging Congressional support of strong payday protections. Many of the same groups also support a statewide effort to cap title loans at 36 percent.
Amidst consistent pressure by consumer advocates, no member of the Illinois Congressional delegation opted to sign on as a co-sponsor of the CRA repeal resolutions. What’s more, Illinois’ Senator Dick Durbin took the lead among his colleagues in warning the CFPB to not undo the rule. Senator Durbin has also long championed the Protecting Consumers from Unreasonable Credit Rates Act, which would cap the interest rate on all consumer loans at 36 percent.
Woodstock Institute is a leading nonprofit research and policy organization in the areas of equitable lending and investments, wealth creation and preservation, and safe and affordable financial products and services. Woodstock Institute works locally and nationally to create a financial system in which lower-wealth persons and communities of color can safely borrow, save, and build wealth so that they can achieve economic security and community prosperity.