Last week, the Consumer Financial Protection Bureau (CFPB) moved to gut the agency’s own consumer protections against predatory payday and car-title lenders, leaving people exposed to the harms of these predatory products. Georgia thankfully already has a usury cap in place, providing protections from the payday loan debt trap that are even stronger than the CFPB rule. However, abusive car title lending still plagues Georgia, so the state usury cap must be expanded to also cover car title lending. In addition, the CFPB should abandon this plan to repeal its rule and allow it to go into effect.
Car title lending costs Georgia families $199,575,563 per year in abusive fees. Borrowers must provide the title of their vehicle as collateral for this high-cost loan, which forces a family dependent on that vehicle for their livelihood to renew the loan repeatedly if they cannot afford to pay it off in full — or lose their car to the lender.
16 states plus D.C. effectively protect against the harms of payday and car title lending by capping the rate. However, 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 long-term, unaffordable debt.
The ability-to-repay provision is now under attack, as the CFPB, acting in payday and car title lenders’ interest, moves to undo protections built on 5 years of research, data collection, field hearings, and public comments, even though no new evidence 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.
A two-page summary of the original CFPB payday rule can be found here: http://stopthedebttrap.org/wp-content/uploads/2019/02/stdt-summary_cfpb_2017_payday_rule.pdf