US Bishops Speak Out Against CFPB Payday Plan

Inside Subprime: April 5, 2019

By Jessica Easto

Catholic Charities USA and the United States Conference of Catholic Bishops, along with a “broad and diverse coalition of Christian churches and organizations,” have signed a letter criticizing the Consumer Financial Protection Bureau’s proposal to roll back provisions of a rule designed to protect consumers from high-cost payday loans and title loans.

These Catholic organizations join a growing number of consumer advocacy groups who have spoken out about the proposed changes to the “small dollar lending rule” and criticized its potential impact on low-income Americans, those most likely to borrow such loans.

The Obama-era rule was announced in October 2017 and would (1) require lenders to verify that customers were financially able to pay off their loans within the terms of the loan and (2) limit the number of times lenders could try to withdraw funds directly from borrowers’ accounts.

The rule, however, was never enacted. Now the CFPB plans to nix the first provision from the rule and delay the second until 2020. An anonymous CFPB official told journalists that the decision was based on “a concern that there is not enough evidence showing that payday lending is unfair and abusive enough to necessitate the rule.”

US bishops, who wrote that the original rule “offered some hope for relief from the debt traps that have devastated” many of their members, do not agree.

“The rule as finalized seeks to protect vulnerable individuals and families in time of financial crisis from debt traps designed around their inabilityーas opposed to abilityーto repay their loan,” the letter reads. “A strong rule must not only have strong upfront underwriting requirements, but effective back-end protections against repeated flipping of the loans as well.”

Predatory loans often have annual percentage rates (APRs) of 400 percent or more, and their terms allow for compounding fees. These loans tend to be marketed toward people who do not qualify for traditional loan products due to bad credit and who urgently need the small-dollar loans to make ends meet. This often leads to a situation in which the borrower cannot repay the loan and so accumulates debt that is difficult to escape.

“This sanctioning of usurious loans not only contradicts our own faith traditions, but also contradicts the CFPB’s own reasoning laid out in its rule,” the letter states.

For more information on scams, predatory lenders and payday loans, see our city and state financial guides including states and cities like California, the District of Columbia, FloridaIllinois, South CarolinaTexas and more.