A nationwide network of nonprofits today praised a historic proposal by the Consumer Finance Protection Bureau (CFPB) to provide safeguards for users of payday loans, calling for careful review to ensure that the new draft rule properly protects millions of Americans from predatory lending.
“The CFPB must ensure that payday loans are not a debt trap dressed up as a lifeline,” said Bert Brandenburg, president of Appleseed, a national network of public interest justice centers working to help low-income people build better lives. “Without protections that are strong and clear, too many payday loans fuel poverty instead of relieving it.”
The CFPB defines payday loans as short-term loans, usually for $500 or less, that are typically due on a borrower’s next payday. The finance charge may range from $10 to $30 for every $100 borrowed. A typical two-week payday loan with a $15 per $100 fee equates to an APR (APR) of almost 400%. By comparison, APRs on credit cards usually range from about 12 percent to 30 percent. Payday lending is banned in 15 states.
Appleseed is a network of 17 centers across the U.S. and Mexico, deeply rooted in their communities, that advances justice and opportunity to help low-income people build better lives. Appleseed centers in Alabama, Hawaii, Nebraska, South Carolina and Texas have worked to shine a light on payday lending debt traps in their states, enact reforms to protect consumers, and ensure that the court system treats everyone fairly instead of becoming an assembly line in service of the debt collectors.
- In Alabama, in 2003 the payday lending industry persuaded the legislature to legalize annual percentage rates (APR) of up to 456% rates for a 14-day loan, and up to 621% on a 10-day loan, and a study by the Center for Responsible Lending estimates that state residents pay $125,216,000 annually in payday lending fees—6th in the nation. Alabama Appleseed has led lobbying efforts to protect vulnerable consumers, helped pass 20 bans and zoning ordinances to curtail payday lending in 20 municipalities, and served as the State Banking Department’s expert witness in a lawsuit over regulations establishing a statewide database. Alabama Appleseed also coordinates the Alliance for Responsible Lending, a statewide coalition of advocates and stakeholders, and organized a community stakeholders’ roundtable during the CFPB’s first field hearing in Birmingham. Last March the White House asked Alabama Appleseed to convene payday lending advocates to meet with President Obama during his visit to Alabama.
- In Hawai’i, where payday lenders charge some of the nation’s highest rates (about 460% APR), Hawai’i Appleseed is fighting to cap the rate at 36%. The Center for Responsible Lending estimates that state residents pay $3,281,179 annually in payday lending fees.
- In Nebraska, the situation is similar—payday lenders charge about 461% APR—and Nebraska Appleseed is fighting for legislation to cap the rate, give borrowers enough time to pay their debts back—and clearer information about loan terms and their own rights. The Center for Responsible Lending estimates that state residents pay $30,819,287 annually in payday lending fees.
- South Carolina Appleseed has been working to change payday practice in the state since 1999, when it passed legislation to restrict licensing and prohibit prosecution for borrowers whose checks had insufficient funds. The Center focused national attention local payday lenders in a 2009 episode of NOW on PBS, has published materials to educate consumers on payday loans and helped pass legislation that allows only one loan at a time per borrower (and sets up a database to enforce the requirement), as well as enacting strict industry reporting requirements that have cut the number of loans made each year by 75%, cut fees paid by consumers by almost $100 million a year. Despite these achievements, the Center for Responsible Lending estimates that state residents still pay $57,773,701 annually in payday lending fees—12th in the nation.
- In Texas, which has less regulation of payday loans than virtually any other states, loans often carry rates of 500% percent APR or higher, and has some of the highest fees in the nation, according to the Center for Responsible Lending study. A separate Texas Appleseed publication released today documents a pattern of increasing fees for payday and auto title loans in the state. Payday lending fees reached $1.24 billion in 2015. Texas Appleseed, in partnership with a broad coalition of nonprofit and faith-based organizations, has helped 35 Texas cities adopt affordability standards for payday and auto title loans, and helped to expand a homegrown low-cost alternative loan program, the Community Loan Center, to give consumers low-cost alternatives to payday loans. Their research shined a spotlight on payday lenders who were illegally threatening consumers with criminal prosecution, and showed that payday lenders frequently cluster around facilities where veterans live. Texas Appleseed also works with the Texas Fair Lending Alliance to reform the Texas payday and auto title loan market.
Appleseed Centers in Alabama, South Carolina and Texas have worked with numerous local jurisdictions to pass zoning ordinances to limit the spread of payday and title lenders in multiple communities in their states.
In 2012, the national office of Appleseed published a best practices checklist to help trial court judges streamline their handling of consumer debt cases while ensuring basic fairness to debtors. Courts following the checklist would ensure that the defendant’s identity and address are properly verified, that the debt collection complaint is valid, and that the creditor is the actual owner of the debt.
A 2013 report from The Pew Charitable Trusts found that payday borrowers can only afford to devote five percent of their income towards loan payments and still cover basic expenses. But payday loans equal one-third of a typical borrower’s income.
The CFPB’s proposed rule, which will be open for comment for 90 days, comes on the heels of an announcement by Google last month that it would ban ads for payday loans.