WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) has proposed a rule aimed at endingpayday debt traps. The proposed rule would take action against business practices that profit from a borrower’s inability to repay their loans.
To most, payday loans may seem like easy and fast money. The reality; however, is that borrowers often find themselves trapped in a cycle of debt due to the exorbitant interest rates attached to these loans.
It is a well established practice in the payday lending industry to market loans to minority communities. Thus, many victims of the payday lending debt trap are hardworking Latinos who are struggling to make ends meet.
The CFPB’s proposed rule is a first step toward eliminating the abusive practice of payday loans. Predatory payday lenders are already plotting to oppose any efforts to reign-in their abusive practices and are looking to exploit any loopholes left open by the proposed rule.
As a member of the League of United Latin American Citizens (LULAC), the nation’s oldest and largest Latino civil rights membership organization, I write to urge you to continue your efforts to reign-in abusive predatory payday lending practices.
The abusive payday lending practices. (CFPB) recently proposed a rule aimed at ending payday debt traps by requiring lenders to take steps to make sure consumers have the ability to repay their loans.
This is a positive first step at stopping the abusive practices that trap Latinos and other low-income Americans in cycles of debt. According to some studies, Latinos are more likely to be disproportionately impacted by payday lending practices as many payday lenders target under-served communities. The results are devastating:
- According to the Center for Responsible Lending, payday loans drain over $3.4 billion annually in excessive fees from payday borrowers, with a large majority paid by borrowers caught in the payday debt trap.
- The average borrower will take out the same $250 loan up to 10 times. For each loan that is secured, there are fees averaging $45. Under these conditions, a borrower would pay $450 in fees.
- Payday loan borrowers are more likely to incur overdraft charges and bounced check fees, lose their bank accounts, default on their loans, or file for bankruptcy.
- According to data from the Consumer Financial Protection Bureau, over 75% of all fees to payday lenders are generated by borrowers with more than 10 loans a year.
Robust and immediate action is needed to curb predatory lending practices. The proposed rule is a positive first step in reigning-in bad actors in this industry.