What Palomarez’s article fails to mention is that payday lenders specifically target communities of color, and their business model creates a vicious cycle of debt that is difficult for most borrowers to escape. In fact, the typical payday loan carries an exorbitant 391 percent APR, is given to borrowers without consideration of their ability to pay it back, and with direct access to their bank account.
At the 2016 NCLR Annual Conference in Orlando last month, NCLR staff was out in full force collecting comments from attendees in support of the Consumer Financial Protection Bureau’s proposed rule to curb payday lenders’ abusive lending practices.
As we’ve highlighted in our Truth in Payday Lending series, the Latino community has especially fallen victim to these shady operators. In the absence of safe and affordable financial products, people desperately in need of cash turn to payday lenders, who prey on our communities. Promising relief, these payday lenders lure struggling Latinos into situations that quickly morph into an endless cycle of borrowing and debt.
We’re going to Orlando this year for the 2016 NCLR Annual Conference. While the Sunshine State has many attractions to offer its visitors and residents, payday loans are not among them.
Readers of our “Truth in Payday Lending” series may recall a report that NCLR released with the Center for Responsible Lending that examined the failure of a state law that was designed to curb the negative effects of payday loans. The report shows payday lenders have stripped a staggering $2.5 billion in fees from Floridians since 2005. In 2015 alone, their shady lending practices yielded more than $300 million for the industry.
Over the last few weeks, readers of NCLR’s blog series “Truth in Payday Lending” learned how the lack of regulation over the payday lending industry has harmed Latinos and other consumers who turn to these products in times of financial need. These unscrupulous and predatory lenders use a business model dependent upon a borrower’s inability to pay a loan. As a result, consumers have lost millions of dollars and been trapped in a cycle of debt.
NCLR and its partner organizations are encouraged by the newly proposed rule by the Consumer Financial Protection Bureau, which would address payday and car title lending—and end this cycle of debt. The proposed rule covers loans which, on average, carry more than 300% annual percentage rates (APR)—a rate much too high for consumers. CFPB’s proposal would establish an ability-to-repay principle for covered loans, based on a borrower’s monthly income and expenses. While this is already a principle for other types of loans, payday loans have not been subject to this important and fundamental determination of a borrower’s ability to afford a loan.
However, the CFPB’s proposal currently contains loopholes that would exempt certain loans from the ability-to-repay requirement. NCLR strongly believes that the rule should contain no exemptions to the loans that would be subject to this provision. In addition, protections against loan flipping, or re-borrowing additional loans to cover the cost of the original, need to be strengthened. Currently, the proposal has a waiting period of 30 days between loans, which NCLR believes should be lengthened to 60 days. Together, these provisions would allow borrowers to stay in the same cycle of unaffordable debt that many are facing now, undermining the protections the rule is supposed to put into place.
NCLR is advocating for the CFPB’s payday lending rule to:
Keep a strong ability-to-repay provision, without exceptions.
The American public has a very low opinion of payday lenders, says a new poll out from the NCLR Action Fund, Americans for Financial Reform, Center for Responsible Lending, and the NAACP. The poll, which comes on the heels of a proposed Consumer Financial Protection Bureau rule to reign in predatory lending, shows Americans see little value in the services payday lenders provide.
The poll, conducted from May 26 to June 1, 2016, surveyed 1,400 registered voters and found that payday lenders represent some of the least popular institutions around. Of those surveyed, only 3% had a favorable opinion compared to a 51% unfavorable rating. This makes them less liked than used car salesmen.