Warren's CFPB Cracks Down on Predatory Lenders—But Will It Be Enough?

Newly proposed rules aimed at reining in predatory payday lending are “a good first step,” economic justice groups said on Thursday, but “worrisome loopholes” must be closed in order to fully protect low-income Americans from financial devastation wrought by the high-interest, low-dollar loans.

The U.S. Consumer Financial Protection Bureau (CFPB) unveiled the new rules on Thursday, at a hearing in Kansas City, Missouri—a state, Politico notes, “where storefront lenders outnumber McDonald’s and Starbucks franchises.”

Under the proposal, lenders of payday, auto-title, and other high-interest loans will be required in many cases to verify their customers’ income and to confirm that they can afford to repay the money they borrow—plus fees and interest.

“It’s time for our Representatives in Congress to speak up and let us know where they stand. Do they support the CFPB’s proposed rule, or not? Will they champion the needs of their constituents and those caught in the payday lending debt trap or that of the predatory lenders who fill many of their campaign bank accounts?”
—Karl Frisch, Allied Progress

In addition, the long-awaited rules would also curtail the number of times that people could roll over their loans into newer and pricier ones—thus getting stuck in a “debt trap”—and prohibit lenders from making more than two unsuccessful attempts to debit money directly from borrowers’ bank accounts.

But while there was wide agreement that the proposal would reshape the loan landscape, some said the proposal didn’t go far enough. Nick Bourke, who directs the Pew Charitable Trust’s Small Dollar Loans division, wrote on Thursday:

Lauren Saunders, associate director of the National Consumer Law Center in Washington, D.C., also pointed to “worrisome loopholes” including the fact that lenders could make up to three back-to-back payday loans and could start the sequence again after only 31 days.

The crackdown is likely to deepen the rift between Sen. Elizabeth Warren (D-Mass.), who created the CFPB, and Rep. Debbie Wasserman Schultz (D-Fla.), who backs a bill that would delay the CFPB regulations for two years while states put in place measures like Florida’s—under which payday loan stores have flourished.

Earlier this week, the group Allied Progress released a 30-second TV ad calling on Wasserman Schultz to drop her support for the industry and lambasting her for “refusing to put her constituents and millions of vulnerable Americans ahead of an industry that has given her more than $68,000 in campaign cash.”

On Thursday, Allied Progress executive director Karl Frisch declared: “It’s time for our Representatives in Congress to speak up and let us know where they stand. Do they support the CFPB’s proposed rule, or not? Will they champion the needs of their constituents and those caught in the payday lending debt trap or that of the predatory lenders who fill many of their campaign bank accounts?”