October 5, 2017
DECATUR, Ga. — Stephen K. Reeves, who leads the advocacy efforts for the Cooperative Baptist Fellowship, commented on the long-awaited rule from the Consumer Financial Protection Bureau (CFPB) to rein in the payday and auto-title loan industry. The CFPB’s rule announced today aims at stopping payday debt traps by requiring lenders to determine upfront whether people can afford to repay their loans.
“The final rule proposed today represents a momentous step forward in the fight to reign in predatory lending practices nationwide. It is common sense that lenders insure borrowers can repay a loan within the agreed term without the need to re-borrow,” Reeves said. “While I believe the Consumer Financial Protection Bureau’s own research would justify a stronger rule, I thank them for the open process and their willingness to engage with and hear from the faith community. A strong and independent CFPB is critical to preventing deceptive and unfair products. They must be allowed to vigorously enforce this new rule.
“I am so proud of how Cooperative Baptists across the country have answered the call and been strong advocates on behalf of and alongside their most financially vulnerable neighbors. The response from CBF congregations and pastors has been tremendous. Cooperative Baptists were responsible for more than 550 comments to the CFPB calling for a strong rule, and I am certain that this made an impact.
“While this is an important moment, it is by no means the end of the struggle to end debt-trap loan products. Congress itself can help return this country to traditional, moral usury laws by passing a nationwide 36 percent interest rate cap for small-dollar loans, just as they have done for members of the U.S. military. In addition, we must stay committed to the work at the state level. I am proud of the work of CBF of Florida as they lead the charge to institute a constitutional rate cap.”
The CFPB rule aims to stop debt traps by putting in place strong ability-to-repay protections. These protections apply to loans that require consumers to repay all or most of the debt at once. Under the new rule, lenders must conduct a “full-payment test” to determine upfront that borrowers can afford to repay their loans without re-borrowing. For certain short-term loans, lenders can skip the full-payment test if they offer a “principal-payoff option” that allows borrowers to pay off the debt more gradually. The rule requires lenders to use credit reporting systems registered by the Bureau to report and obtain information on certain loans covered by the proposal.
The rule allows less risky loan options, including certain loans typically offered by community banks and credit unions, to forgo the full-payment test. The new rule also includes a “debit attempt cutoff” for any short-term loan, balloon-payment loan, or longer-term loan with an annual percentage rate higher than 36 percent that includes authorization for the lender to access the borrower’s checking or prepaid account.
“Payday lenders are notoriously creative in finding ways to avoid new regulations,” Reeves said. “We know they will attempt to evade these new provisions. I’m particularly concerned that longer-term loans are not covered by this rule. We know the industry is already moving in that direction. We look forward to continuing to work with the CFPB to finalize longer-term loan rules and closing any loopholes which lenders find to continue exploiting borrowers.”
CBF Advocacy will have further analysis of the rule at a later date. Should congress attempt to overturn the rule via congressional review act or otherwise try to hamper enforcement, CBF Advocacy will be ready to assist advocates in making their voice heard.
A factsheet summarizing the CFPB rule on payday loans is available at: http://files.consumerfinance.gov/f/documents/201710_cfpb_fact-sheet_payday-loans.pdf
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.