Last Thursday, 32 senators, led by Jeff Merkley (D-OR), Dick Durbin (D-IL), and Chris Coons (D-DE), wrote to the Consumer Financial Protection Bureau (CPFB) to urge Director Richard Cordray to issue the strongest possible rules to stop predatory payday lending.
The letter asserts, "Small-dollar, short-term loans with astronomical interest rates that pull consumers into a cycle of debt are predatory," and continues, "Predatory lenders should not be able to continue unfair, deceptive, and abusive acts or practices that are designed to trap borrowers in a cycle of debt."
Here is the full text of the letter:
Dear Director Cordray:
We write regarding the Consumer Financial Protection Bureau’s (CFPB) efforts to study and address payday lending practices. We support the CFPB’s initial steps towards releasing a proposed rule and urge you to issue the strongest possible rules to end the damaging effects of predatory lending.
Small-dollar, short-term loans with astronomical interest rates that pull consumers into a cycle of debt are predatory. These loans have high default rates, including after the borrower has already paid hundreds or thousands of dollars because of triple-digit interest rates. Notably, the typical borrower of a two-week loan is in debt for more than half the year. In addition, longer term high-cost installment loans with smaller payments than lump-sum payday loans can result in high default or refinancing rates, high rates of bounced payments and other harmful consequences. Even if consumers do not default on these loans, high interest rates, preauthorized payment methods and aggressive debt collection efforts often cause a cascade of devastating financial consequences that can include lost bank accounts, delinquencies on credit cards and other bills, and bankruptcy.
Predatory lenders should not be able to continue unfair, deceptive, and abusive acts or practices that are designed to trap borrowers in a cycle of debt. A CFPB study found that 75 percent of loan fees on payday loans came from consumers with more than 10 transactions over a twelve-month period. This is a business model rooted in preying on individuals and families that have no ability to repay, and the CFPB has a critical opportunity to protect consumers by issuing strong rules. We hope that the Bureau will do so, while also taking into account and respecting states that have strong laws currently in place and building on their efforts to protect consumers from predatory lending.
In finalizing proposed rules, we urge you to focus on meaningful measures to ensure a consumer’s ability to repay. In the outline of the proposals being considered, the CFPB wrote that it “believes that the failure to make an ability-to-repay determination results in many consumers taking out unaffordable loans.” Ability-to-repay is a fundamental element of responsible lending; however, predatory lenders, particularly those with direct access to a consumer’s checking account, have not prioritized this standard. Lending in the absence of an effective ability-to-repay determination, and monitoring of how loans perform in practice, causes substantial harm to consumers. We urge you to give this standard appropriate consideration in the proposed rules.
We appreciate your attention to this issue and hope you will soon issue strong rules to address the predatory lending practices that will only continue to harm consumers without swift action.
When I saw that 32 senators (30 Democrats plus the two Independents) had signed, my first thought was "Which ones didn't?"
Here are the 14 Democrats who did not sign on:
Michael Bennet (D-CO)
Bob Casey (D-PA)
Tom Carper (D-DE)
Joe Donnelly (D-IN)
Heidi Heitkamp (D-ND)
Joe Manchin (D-WV)
Claire McCaskill (D-MO)
Bob Menendez (D-NJ)
Barbara Mikulski (D-MD)
Patty Murray (D-WA)
Bill Nelson (D-FL)
Harry Reid (D-NV)
Jon Tester (D-MT)
Mark Warner (D-VA)
If you are a constituent of theirs, give them a call to ask why they didn't sign onto the letter.