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Michael Roles, Field Organizer
PennPIRG – Pennsylvania Public Interest Research Group
National Payday Proposal Leaves Pennsylvania Vulnerable
Advocates Say Rule Needs Work, Poses Problems for States with Stronger Laws
Harrisburg, PA -- Today, the Consumer Financial Protection Bureau -- the federal government's consumer cop-on-the-beat -- revealed a new proposal to curb payday and car title lending. The new proposal aims to put an end to the worst abuses of these practices across the country. In doing so however, the new proposal could inadvertently undercut our strong state usury and other consumer protection laws in Pennsylvania, said Michael Roles, Field Organizer for the Pennsylvania Public Interest Research Group (PennPIRG).
“Ninety million Americans live in states that, like Pennsylvania, effectively ban predatory, high-cost payday loans, and we’re clearly all better off without them,” he said. “Unfortunately, the CFPB’s proposed rule includes a glaring loophole that would continue to allow payday lenders to make high-cost loans without assessing whether the borrower has the ability to repay.”
The proposed federal rule would not preempt our stronger state-interest rate cap; however, any loophole in the rule that would allow unaffordable, abusive loans to continue in states where they are legal threatens Pennsylvania's law by providing unwarranted legitimacy to predatory practices.
Already, the payday loan industry is using weaknesses in portions of the CFPB rule -- mostly around long-term loans -- as a Trojan Horse to come into Pennsylvania. They have been crafting legislation to legalize high-cost, unaffordable, long-term payday loans in Pennsylvania, claiming that the CFPB gave these loans its “seal-of-approval” in its outline of the payday lending rule that it released last March. While a cosponsor memo claims that the legislation would create a safe lending product for consumers, a circulated draft reveals that it would legalize predatory, long-term payday loans, eviscerating Pennsylvania’s cap on fees for consumer loans. A letter submitted to the CFPB from Pennsylvania leaders stresses the necessary steps to support state protections.
“We support the fundamental principal of the proposed rule: that a lender must ensure that a borrower has the ability to repay the loan without having to borrow again, while still being able to cover basic living expenses. But any exception to that standard risks sending the message that the CFPB has sanctioned a whole category of high-cost, predatory loans as desirable and safe, when in fact they are harmful and dangerous to borrowers,” said Kerry Smith, Senior Staff Attorney with Community Legal Services of Philadelphia.
“Instead, the rule should help bolster and support state laws that prohibit debt-trap lending. Given that the CFPB cannot set a national usury limit, states must continue to enact and defend interest rate and fee caps, the most effective strategy to prevent harmful lending. Payday loans are the equivalent of financial quicksand: easy to fall into but almost impossible to escape. Families in Pennsylvania are better off without these unaffordable, predatory loans,” Smith said.
“The Department of Defense has stated that predatory loans are so harmful to families and individuals that it affects the military readiness of our troops and even recognized that Pennsylvnaia already has some of the best protections against predatory loans. We expect a CFPB rule to affirm that state caps like in Pennsylvania are the best way to protect our veterans and servicemembers,” said Col. William Harris (Ret.), President of the Military Officers Association of America, Pennsylvania Council of Chapters.
“Scripture speaks specifically against usury—lending money at unreasonably high rates of interest. We believe it is immoral to offer extortionary loans to already vulnerable citizens as a solution of last resort. While Pennsylvania prevents this kind of predatory lending, a CFPB rule that doesn't go far enough could unwittingly signal a green light for high-cost loans here,” said Rev. Sandra Strauss, Director of Advocacy and Ecumenical Outreach, Pennsylvania Council of Churches.
“Contrary to the payday lending lobby, payday loans are not a lifeline for cash strapped consumers. They help perpetuate a two-tiered financial system of insiders and outsiders. Let’s be clear about the real issue. Being low-income or poor is a result of a shortage of money, not a lack of access to short-term credit. Instead of increasing the costs of being poor in the country, let’s devote our time and resources to helping families avoid the circumstances that create a market for payday loans in the first place,” said Markita Morris-Louis, SVP Community Affairs and General Counsel for Clarifi, a financial counseling agency in Southeast Pennsylvania.
“We appreciate the Bureau’s efforts to curb predatory payday lending by crafting the first-ever federal payday lending rules, and we recognize that this is not an easy task. But a weak rule that undermines our strong state protections could equip the payday industry with the argument they’re seeking in order to legalize their practice here, which could drop predatory store-fronts right into our neighborhoods, seeking to hoodwink the very neighbors we serve. These businesses would drain money from our community and force us to divert resources away from neighborhood progress in order to assist our clients in climbing out of that trap of debt,” said Mark Harrell, Community Organizer for Southwest Community Development Corporation in Philadelphia.
“The CFPB should use its full authority to crack down on payday and other high-cost loans, and send a strong message that any kind of predatory lending is unacceptable. “We urge the CFPB to issue a strong final rule that bolsters, and does not undermine, our state's protections,” said Roles.
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