As the comment period for the Consumer Financial Protection Bureau’s (CFPB) proposed rule on small-dollar and payday lending came to a close last week, more than 100 House Democrats, led by Rep. Maxine Waters (D-Calif.) sent a letter to the bureau urging it to adopt a strong final rule and close loopholes that harm consumers.
The letter said the Democrats support the bureau’s efforts to “ensure that fairness, honesty, and transparency” are parts of the small-dollar lending industry. “Moreover, we firmly reject the idea that the need for access to small-dollar credit somehow requires regulators to turn a blind eye to any predatory practice or product feature that hurts borrowers,” they wrote.
The group urged the CFPB to strengthen the final rule to close loopholes that would allow multiple loans to be taken out in succession.
“The bureau’s adoption of an ability-to-repay principle based on a borrower’s income and expenses is critical to ensuring fairness for consumers,” they wrote. “We also encourage the bureau to enact stronger protections against consumer abuses in the small-dollar industry by closing loopholes that would allow borrowers to take out multiple loans in succession or provisions that would reduce the cooling-off period
“Earlier research by the bureau shows that 62 percent of payday loans are made to consumers that end up taking out seven or more loans in a row. … This cycle of debt can lead to a cascade of financial consequences.”
More needs to be done, the Democrats said, to prevent consumers from falling into debt traps.
“Though we applaud the CFPB for taking the necessary first steps to address predatory practices in the small-dollar credit market, we urge you to adopt a final rule with additional protections that will ensure responsible lending,” they wrote. “Only a comprehensive federal framework, free of harmful loopholes, can supplement existing state protections and help stop consumers from becoming trapped.”