Editor’s note: The CFPB, a federal agency, has proposed new rules for payday, car title, and high-cost installment lenders.
BUT, they need to hear from consumers- that means you! We have an easy-to-use page where you can weigh in- it only takes a minute and will help bring about important consumer protections with these loans. Please share a line or two in the comments box about why you care about this issue and want to see strong federal reforms.
In October this year, 466 organizations signed onto a letter to the Consumer Financial Protection Bureau, urging the agency to design rules for payday loans that would end the so-called debt-trap.
What is the debt trap? Well, imagine you’ve run short on money for the month, so you think you’ll use a payday loan to make ends meet (after all, that’s what their marketing tells you it’s for, right?). Unfortunately, two weeks later, when you’re expected to repay the loan, your income situation may not have changed, meaning you don’t have enough to pay back the loan and have enough money left to pay your regular bills. So, you pay back your loan, and take out a new one.
This cycle repeats itself over and over and over again. In fact, new research from our colleague at the Center for Responsible Lending, finds that lenders generate 76% of their revenue from borrowers who take out 7 or more loans per year.
This research, once again, contradicts industry claims (and marketing) that the loans are for “one-time, emergency use.” In fact, the loans are designed to keep people in debt because that’s how the industry makes its profits.
You can read the more in-depth letter, (link here) written by Americans for Financial Reform to get a better understanding of the problems with payday loans and the ways that the CFPB can address the problems and protect consumers.
If you’d like to stay informed as the CFPB develops these rules, sign our petition to the CFPB, and we’ll keep in touch. Also, if you have a story you’re willing to share about payday loans, we’d also appreciate your input: Petition to CFPB
The letter struck a nerve in California, where 35 organizations signed onto it, many of whom are CRC members and allies:
Asian Law Alliance
California Association of Food Banks
California League of United Latin American Citizens (LULAC)
California Reinvestment Coalition
City Heights Community Development Corporation
Community Legal Services in East Palo Alto
Consumer Credit Counseling of San Francisco
Consumers for Auto Reliability and Safety
East Bay Community Law Center
East LA Community Corporation
Faith in Community
Habitat for Humanity Greater San Francisco
LA County Consumer Affairs
Labor Community Services
Law Foundation of Silicon Valley
Mission Assets Fund
Mission SF Community Financial Center
Mutual Housing California
New Economics for Women
Northbay Family Homes
Nuestra Casa de East Palo Alto
St. Joseph’s Family Center
T. Cooke and Associates
The Fair Housing Council of San Diego
Treasurer, City and County of San Francisco
United Way Silicon Valley
West Valley Community Services
Working Partnerships USA
Yolo Mutual Housing Association
Youth Leadership Institute