By Aaron Weaver
DECATUR, Ga. — The Consumer Financial Protection Bureau (CFPB) announced today a draft of proposed federal regulations to end abusive practices in the payday lending industry. The draft set forth would require payday lenders to verify borrowers’ income and expenses before making a loan to determine whether they could reasonably be expected to both pay off the loan and meet other living expenses, such as rent and groceries, without having to borrow again and accumulate additional fees.
With these loans that can have interest rates of up to 500 percent, many borrowers find themselves in a cycle of re-borrowing or renewing loans, incurring fees that have them repaying far more than they originally borrowed.
Cooperative Baptist Fellowship leaders have been active in calling for reform of payday lending practices and an end to predatory lending in several states, including Kentucky, Missouri and Texas.
Stephen Reeves, CBF’s associate coordinator of partnerships and advocacy, welcomed the announcement of proposed federal rules to address the problem.
“Cooperative Baptist pastors and leaders are pleased that the Consumer Financial Protection Bureau is moving forward with rules that will go a long way in creating a truly fair marketplace for small-dollar loans,” Reeves said. “It is time to return to traditional values regarding usury and away from immoral debt-trap loans that have done so much damage to the most vulnerable among us. The incredible consensus among faith organizations proves that no longer will people of faith stand by while our neighbors are exploited for profit. We thank the CFPB for their thoughtful proposal and call on members of Congress to support and defend the enforcement of the new rules.”
The regulations set forth in the draft are seeking accountability — asking that payday lenders be required to make good loans that can be paid back in full, on time, without causing the borrower to default on household necessities. With this in mind, the goal is to end abusive lending practices, while still leaving space in the marketplace for responsible small-dollar lending.
Along with making good loans, CFPB asks that lenders be held to making affordable loans — loans that borrowers are expected to (and can) pay back on time. With the average annual interest rate of 391 percent, the business model of payday lending is abusive and carries unrealistic expectations of on-time repayment from most borrowers.
Requiring that these loans be affordable can put an end to these abusive practices and allow small-dollar lenders the opportunity to reform their business models to reflect responsible lending practices. Practical steps toward making good and affordable loans can come in basic processes of verifying household income and housing costs of potential lenders.
The CFPB is also proposing restrictions to harmful payment collection practices by lenders, as lenders often obtain access to a borrower’s checking, savings or prepaid account to collect payment. Collecting payment through post-dated checks, debit authorizations or remotely created checks often leads to unanticipated withdrawals from borrower accounts and fees from banking institutions that pile up alongside fees incurred from the loan.
To combat these harmful practices, CFPB proposes that lenders be required to notify borrowers before accessing accounts and collecting payment, and that lenders limit unsuccessful withdrawal attempts, so as to limit excessive account fees.
To request an interview with Stephen Reeves on these proposed rules, contact Aaron Weaver at firstname.lastname@example.org or (770) 220-1610.
CBF is a Christian Network that helps people put their faith to practice through ministry efforts, global missions and a broad community of support.The Fellowship’s mission is to serve Christians and churches as they discover and fulfill their God-given mission.