By Stephen K. Reeves
On October 5, the Consumer Financial Protection Bureau (CFPB) announced the release of a long-awaited final rule addressing short-term payday and auto title lending nationwide.
CBF has made the fight for reform of these 400% interest rate debt-traps a focus of our initial advocacy efforts. The rule represents years of work by the CFPB and takes into consideration feedback from several field hearings and countless public comments. It is complex, measuring 1,690 pages, so today we are releasing a short, simplified summary of the rule as well as suggestions for continuing advocacy efforts.
This document adds to the list of resources previously published on our website to help educate and encourage advocates within the Fellowship. These include a basic educational piece, an explanation of why we engage in advocacy on this issue along with frequently asked questions, a description of the CFPB and its role in this effort, the principles and member list of the Faith for Just Lending Coalition, a map of payday lending rates across the country, and a comprehensive list of other publications and resources.
The response to our efforts by pastors and church members has been gratifying.
Often churches and community ministries are the first place those trapped in loans turn to for help. Speaking out and calling for justice for our financially vulnerable neighbors are not exercises in partisan politics, but a response to the Gospel call to love our neighbors. CBF churches and pastors across the country have not neglected the power of their prophetic public witness. Several have coupled that advocacy with direct assistance through alternative loan programs. One excellent example is the University Hope ministry of University Heights Baptist Church in Springfield, Missouri.
Meeting immediate needs is important, but a return to fair laws that recognize usury as immoral is the ultimate answer. The primary goal of the CFPB rule is to prevent loans designed to be debt traps. Lenders generate 75% of their loan fees from customers with 11 or more loans a year. Such a business model thrives on creating perpetual indebtedness from what are advertised as short-term loans. The rule would require lenders to engage in a realistic assessment of a borrower’s ability to repay the loan while meeting other financial commitments. It is based on common sense and is how other loans work. The rule also encourages more responsible small dollar loans by exempting credit union “alternative loans” and personal bank “accommodation loans.”
Unfortunately, the rule does not address longer-term installment loans that carry triple-digit interest rates which are proliferating in states across the country. The CFPB does express concerns about such products and may address them in a future rule.
The work of advocates is by no means complete. Enforcement of the rule is a long way off and not guaranteed. The new regulations are not set to take effect until late summer 2019 and possibly never will. Congress may act to overturn the rule through the Congressional Review Act in early 2018 or pass a law giving lenders a “work-around” to avoid the rule. Contacting your representatives in Washington with support for the CFPB rule is critical.
Finally, on October 15, CFPB Director Richard Cordray announced his intent to resign at the end of November. I’ve been blessed to meet with Dir. Cordray on numerous occasions and also to serve as an expert panelist at a field hearing. He is a man of faith who has warmly welcomed input from the faith community, and he will certainly be missed. I share the concerns of CBF Pastors Steve Wells and George Mason who called for the next director to continue the strong work of Director Cordray.
CBF Advocacy will continue to be a resource for payday lending reform advocates in our churches and will work to connect pastors and church members to trusted experts and coalition partners.