States burdened by predatory payday lending are reeling from announcements that the Consumer Financial Protection Bureau (CFPB) plans to gut its 2017 payday lending rule. Montana, along with 15 states and D.C., offer strong safeguards against predatory payday lending. In fact, Montanans save $37 million annually because we recognized the danger of the debt trap, and voted in a 36 percent usury cap on annual interest rates for payday loans.
Proposing to gut the payday rule reveals that CFPB leadership is once again in pockets of predatory lenders. In states without debt-trap protections, payday and car-title lenders ensnare people in 300-400 percent interest loans, leading to significant financial distress.
These lenders have a long history of exploiting and creating loopholes when they can. State usury caps were the only prevention against this exploitation.
The CFPB — not legally authorized to cap interest rates — created the 2017 rule to require lenders to make affordable loans, loans that borrowers can repay without taking out another loan to cover living expenses. This ability-to-repay standard would reduce the harms of predatory lending across the nation by disrupting the predatory lending business model dependent on trapping borrowers in cycles of unaffordable debt.
The ability-to-repay provision is now under attack, as the CFPB moves to undo protections built on five years of research, data collection, field hearings and public comments; even though no evidence supporting repealing the rule has come to light.
We’re disappointed to see the CFPB — an organization that helped a Billings family out of an illegal payday loan, years after our law was in place — undermine its own safeguards for people in states without strong protections like ours.
We strongly support ongoing efforts in states around the country and attempts at the federal level to defend the CFPB’s payday and car-title rule in its original form, as written in 2017. We need strong national protections that will eliminate the scourge of predatory payday and car-title lending for everyone. Montana lawmakers must stand by our airtight protections, and seek to protect our neighbors from these debt-trap products.
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.