Virginians Urge CFPB to Maintain Payday Loan Rule
By Lindsay Frankel
Almost 100 Virginians who had negative experiences with payday loans are requesting that the Consumer Financial Protection Bureau maintain the consumer protections originally drafted in the Obama-era rule governing payday loans. They submitted their stories with a Virginia Poverty Law Center letter urging the bureau to reconsider its plan to rollback certain aspects of the rule.
In February, the CFPB announced that it would rescind a key portion of the rule designed to protect consumers from unaffordable loans. Payday loans have average annualized interest rates reaching almost 400 percent, according to the bureau. These costly loans often lead to repeat borrowing—about four out of every five payday loans are rolled over or renewed—which traps borrowers in debt. The bureau’s payday lending rule, which was originally written under the Obama administration, would have required that lenders look at a borrower’s income, debts, and expenses to determine if a loan should be issued and in what amount. Now, the CFPB plans to scrap this requirement.
Jay Speer, director of the Virginia Poverty Law Center, says the provisions would curtail many of the nefarious practices that harm consumers. “Making loans that a borrower cannot afford to repay is the hallmark of a loan shark and not a legitimate lender,” he wrote to the CFPB.
The bureau contends that reversing the requirement would maintain access to credit for people who aren’t served by traditional lenders and also cited “insufficient evidence and legal support” for the underwriting requirements. But consumer advocates and lawmakers have criticized the bureau for siding with the payday lending industry instead of fulfilling the agency’s intended mission of consumer protection.
The letters show that Virginia borrowers are often surprised by the ultimate cost of taking out a payday loan, and that many find the fees unaffordable. The typical interest rate on a payday loan in Virginia is 305 percent, according to Pew Charitable Trusts. One Blacksburg resident wrote, “My wife became disabled and when she could no longer work we were facing financial troubles … Over the years, I’ve paid thousands in interest — between $60,000 and $70,000, easily. I’ve always had a steady job and this has shown me it can happen to anyone.”
Some consumers may not fully understand the cost when taking out a payday loan, while others simply don’t have any other options. Speer said payday loans are commonly used by people who are facing emergencies or are otherwise financially desperate. He also said calls to the VLPC hotline have revealed that borrowers are frequently intimidated or even threatened by lenders.
The letters share these stories as well. One Richmond resident wrote, “I would get two or three calls a day, and the people on the other end would make all kinds of threats. They said they were sending someone to my house to have me arrested.”
Though these stories reflected past experiences, many of the authors are still struggling with payday loan debt. One Louisa County resident paid more than $10,000 on a $500 loan and still owes money.
The deadline for public comment on the proposed revisions has closed. CFPB director Kathy Kraninger said the bureau “will evaluate the comments, weigh the evidence, and then make its decision.”
Learn more about payday loans, scams, and cash advances by checking out our city and state financial guides, including Virginia, Lynchburg, Newport News, Norfolk, Richmond, Roanoke and Virginia Beach.