Payday lenders’ legal challenge to important CFPB protections would keep working families stuck in crippling debt traps
WASHINGTON, D.C. – By filing a legal challenge to an important Consumer Financial Protection Bureau (CFPB or Consumer Bureau) rule, payday lenders are seeking to avoid consumer protections against harmful business models that keep distressed borrowers in a cycle of debt, members of the Stop the Debt Trap coalition said today.
Led by the Community Financial Services Association of America (CFSA) and the Consumer Service Alliance of Texas, the payday lending industry filed a lawsuit seeking to overturn the Consumer Bureau’s recent rule addressing payday and car title loans and the severe harm they cause to consumers who cannot afford them. The industry suit aims to invalidate the payday and car title rule and prohibit the CFPB from implementing it. If the court sides with industry and blocks the rule, payday lenders will be able to continue to use harmful business models to keep distressed borrowers in a cycle of debt. Members of the coalition are calling on the Consumer Bureau to defend the rule in court and implement it as planned, to protect consumers from predatory lenders.
The Consumer Bureau issued the rule in October following broad stakeholder input and years of extensive research confirming that these loans trap borrowers in unaffordable debt, causing severe financial harm. At the heart of the rule is the common sense requirement that lenders check a borrower’s ability to repay before lending money. In a 2017 poll of likely voters, more than 70% of Republicans, Independents, and Democrats support this idea. The requirement helps to ensure that a borrower can repay without reborrowing and without defaulting on other expenses—that is, without getting caught in a debt trap.
Representatives from the Stop the Debt Trap campaign released the following statements:
“This is the payday lenders’ latest attack in their war against consumers,” said Mike Calhoun, President, Center for Responsible Lending. “The CFPB payday and car title lending rule is designed to help ensure that lenders only make loans borrowers can afford to repay—a baseline standard that responsible lenders already follow. That payday lenders object to this basic principle, and have waged this baseless attempt to block the rule, shows how deliberate they are in wanting to keep struggling Americans trapped in 300% interest loan debt traps. The Consumer Bureau should fight this suit head on and bring its good work to fruition, protecting millions of people from predatory lenders.”
“The CFPB rule provides critical protections for consumers, who can get caught in unexpected cycles of debt when companies make loans that borrowers cannot afford. We hope the CFPB will vigorously defend its rule, which is the result of years of careful work,” said Lisa Gilbert, Vice President of Legislative Affairs for Public Citizen.
"Payday lenders have spent millions lobbying for rules that would let them exploit consumers, so it's no surprise they are launching a lawsuit against the CFPB rule, which is about the most sensible consumer protection imaginable. It would require lenders to assess a borrower's ability to repay a loan so they don't fall into a punishing debt trap," said Lisa Donner, Executive Director, Americans for Financial Reform.
“The Consumer Bureau carefully collected reams of data documenting how the payday loan business model traps millions of vulnerable people in a cycle of debt,” said Lauren Saunders, Associate Director of the National Consumer Law Center. “There is no basis to the payday lenders' suit challenging this rule, which simply requires payday lenders to do what responsible lenders do every day."
“At a time when many Americans are living paycheck to paycheck while financial institutions are making record profits, we need stronger protections for consumers against unscrupulous financial practices. Yet the payday industry is proving once again that they are focused on lining their pockets, not on the devastating financial harm their products cause. The CFPB’s payday rule has support from the Latino community, who are far too often targeted and exploited by predatory payday lenders, and we oppose attempts by the industry to impede the rule’s swift implementation,” said Marisabel Torres, Senior Policy Analyst, Economic Policy, UnidosUS.
"Payday lending is bad for all consumers, but like most predatory lending, it invariably ends up doing the most damage to communities that are least able to afford it, including communities of color. Some lenders will stop at nothing to trap struggling families in cycles of debt and slowly drain them of what little money they have, only worsening our nation’s alarming racial wealth gap. Payday lenders have been repeatedly rejected in the court of public opinion, most recently by voters in South Dakota, and the courts should reject their schemes as well,” said Vanita Gupta, President & CEO, The Leadership Conference on Civil and Human Rights.
“It's no surprise that predatory payday lenders are behind litigation like this. It demonstrates their disdain of pragmatic protections for consumers. With little accountability for their actions, predatory payday lenders have long preyed upon communities of color, draining them of their hard-earned savings, and with their debt trapping practices, our economic futures. This CFPB rule establishes a much-needed set of transparent responsibilities for lenders and basic rights and protections for borrowers," said Hilary O. Shelton, NAACP Washington Bureau Director and Senior Vice President for Policy and Advocacy.
“Time and again the CFSA and the predatory lenders it represents have demonstrated why they simply cannot be trusted to deal honestly with the CFPB and the American people. They said they wanted to overwhelm the bureau with public comments to stop it from finalizing its payday lending rule and now they are defending the comments of hundreds of thousands of supposedly different individuals who used the exact same language and personal anecdotes in their comments defending the industry. The deception is breathtakingly transparent,” said Karl Frisch, executive director of Allied Progress.
“The payday lending industry makes its profits by deliberately trapping people in loans that they cannot afford,” said Andrea Levere, President of Prosperity Now. “The industry is challenging the CFPB’s payday and car title lending rule because they know it will limit this practice and other predatory activities that compromise consumer safety. We cannot let these lenders continue to take advantage of hard-working Americans by attempting to weaken or dismantle this rule. Prosperity Now stands with our partners in defense of these critical regulations and the important work that the CFPB does.”