To protect Main Street Americans — consumers, investors, homeowners, students, soldiers, retirees and the elderly — from predatory financial behavior and financial instability that can lead to devastating financial crashes like 2008, the Dodd Frank law created the Consumer Financial Protection Bureau (CFPB). It was designed to be and has been a powerful, independent and effective consumer cop policing the Wall Street beat.
However, in Director Kathy Kraninger’s first major rulemaking, the CFPB is proposing two indefensible changes to the payday lending rule:
1) Eliminating the “ability to repay” underwriting requirements for extending a payday loan, essentially greenlighting lending to people who do not ability to repay a loan.
2) Eliminating the “reborrowing limits” by any single borrower, allowing the payday lender to keep lending to the borrower who cannot repay so that they can repay the original loan that they can’t repay.
These changes will create a debtor’s prison without bars. They will put borrowers on an endless cycle of debt that they can never get out of while the payday lender keeps charging and collecting fees, penalties and interest from the loans rolled over and over again. Rather than being concerned that lenders were making loans to people that they know cannot pay them back, the CFPB is now worried that “roughly three out of four payday store fronts would close and as many as 9 out of 10 vehicle title storefronts would close.”
That’s not a consumer protection agency; it’s a predator protection agency.
Protecting financial consumers was one of the primary reasons for the financial reform law and these abusive lending payday practices are exactly why the CFPB was needed and exists. This proposed rule should be killed and the CFPB should get back in the business of protecting America’s hardworking families who desperately need a cop on the Wall Street beat.
(The preceding piece was excerpted from an op-ed Better Markets’ President and CEO, Dennis Kelleher, wrote for The Hill, “CFPB is looking out for financial predators instead of Main Street.”)