Senate Democrats are calling on the Consumer Financial Protection Bureau (CFPB) to crack down on predatory lending with the “strongest rules possible.”
A group of 32 senators led by Sens. Jeff Merkley (D-Ore.), Dick Durbin (D-Ill.) and Chris Coons (D-Del.), sent at letter to CFPB Director Richard Cordray on Thursday asking for the final rules to focus on meaningful ability-to-pay standards for small-dollar, short-term loans to prevent lenders from issuing loans with astronomical interest rates and fees that low-income customers are unlikely to be able to repay.
{mosads}“Predatory lenders should not be able to continue unfair, deceptive, and abusive acts or practices that are designed to trap borrowers in a cycle of debt,” the senators’ letter said. “A CFPB study found that 75 percent of loan fees on payday loans came from consumers with more than 10 transactions over a twelve-month period. This is a business model rooted in preying on individuals and families that have no ability to repay and the CFPB has a critical opportunity to protect consumers by issuing strong rules.”
The CFPB outlined a framework for the rules it’s considering in March, which mapped out two sets of rules: debt trap prevention or debt trap protection. Lenders would be able to choose which set of rules to follow.
Under the prevention rules, lenders would have to verify a consumer’s income, debt and borrowing history when determining his or her ability to repay a loan in full and still cover their basic living expenses and loan payments.
Under the debt trap protection rules, lenders would not be required to do an upfront analysis of a borrower’s ability to repay a loan, but all loans would be limited to $500 with one finance charge and lenders would be prohibited from holding a vehicle title as collateral on a loan.