D.C. Circuit Court Attempts to Thwart Consumer Protections

 By Renato R. Rocha, Policy Analyst, Economic Policy Project, NCLR

CFPB_LogoLast week, the U.S. Court of Appeals for the DC circuit decided against the Consumer Financial Protection Bureau (CFPB), making it easier to remove the director, who serves as head of the Bureau. If the decision stands, it will undermine what the CFPB was created to do in the aftermath of the Great Recession—protect consumers—since the director could be removed by the president without cause.

A challenge to the director’s authority is a challenge to CFPB itself. Since the CFPB opened its doors five years ago, it has become clear that the Bureau is exactly what consumers needed, and consumers overwhelming support its work. The CFPB now has authority to regulate a range of industries that previously lacked transparency, including remittance transfers, credit cards, student loan servicing, and payday loans. In order for the Bureau to continue its essential work on behalf of families, the CFPB needs to remain autonomous.

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American Voters Favor a Well-Regulated Payday Lending Industry

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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.

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The CFPB Empowers Homebuyers

By Nancy Wilberg Ricks, Senior Policy and Communications Strategist, Wealth-Building Policy Project, NCLR

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Yesterday, the Consumer Financial Protection Bureau (CFPB) released new online tools to help consumers be better informed when purchasing a home. Whether you dream of buying a home years down the line or are in the midst of closing now, these tools can give you helpful information specific to your needs.

Richard Cordray, Director of the CFPB, discussed the new tool, housing trends, and market improvements at The Brookings Institute. In the live webcast (also below), he emphasized the need to change the market culture by empowering homebuyers with better information when purchasing their house—the largest asset that many will ever acquire. “When people take out a loan to buy a home, they deserve to have confidence that they are not being set up to fail,” said Cordray.

Full speech below:

These essential tools also come at the one-year anniversary of the CFPB’s mortgage servicing standards. In January 2014, the Bureau implemented new standards to improve deplorable customer service to homeowners, especially for those who need help saving their home from unnecessary foreclosures.

To closely follow compliance with these standards, NCLR and the National Housing Resource Center surveyed its housing counselors and synthesized the findings in a report last week. We were encouraged that the new rules improved the market for families, but we also see room for improvement. Read more here!

Economic Rights Are Essential to the Pursuit of Happiness

Richard_Cordray_newLast week, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray addressed students at Michigan State University on the anniversary of three pivotal moments in American History: the Supreme Court’s 1954 Brown v. Board of Education decision, the 1964 Civil Rights Act, and the Equal Credit Opportunity Act of 1974. With these three historic events, the United States moved closer to fully realizing the inevitable truth that civil rights, political rights, and economic rights are inextricably linked. They are all necessary for a free and democratic society.

While Brown v. Board of Education and the 1964 Civil Rights Act are relatively known for their roles in reducing legal discrimination, Director Cordray used his speech to highlight a less-known antidiscrimination law: the 1974 Equal Credit Opportunity Act (ECOA), which celebrates its 40th anniversary this year. For the first time, ECOA outlawed discrimination by creditors against borrowers based on race, ethnicity, sex, age, and national origin.

While fairness in the lending law has been on the books for four decades, lending discrimination against people of color persists today. People of color have always been targeted by subprime lenders, but the housing crisis fanned the flames of predatory practices as lenders offered risky mortgages that ultimately led to default and foreclosure, pushing millions out of their homes. Latino wealth was decimated, and the racial wealth gap between Latinos and Whites continues to widen more than ever.

Even when controlling for similar credit profiles, research shows people of color routinely pay significantly more for auto loans than Whites.

Last December, NCLR strongly supported a historic $98 million settlement between the CFPB and auto lending giant Ally Financial. In violation of the ECOA, more than 200,000 Hispanics, Asians, and Blacks were charged higher rates for auto loans.

Despite its efforts to root out unscrupulous lenders in the auto sector, the CFPB has its hands tied due to the exemption of the real culprits in auto loan discrimination against minority borrowers: the car dealership lenders who set initial loan prices for borrowers. Despite the fact that auto lenders play a pivotal role in working with customers and setting auto loan prices, the CFPB has no oversight authority of the dealers because they are not considered to be engaging in financial activities.

The auto market must not be exempt from the preservation of Latinos’ economic and civil rights. Like buying a home, the decision to buy a car often involves a large loan paid over a period of years, amounting to the second most expensive purchase most borrows will make in a lifetime.

As of today, laws like the Equal Credit Opportunity Act are in place to protect people of color from discrimination, but ongoing price discrimination against minority borrowers doesn’t reflect this resolution.

To create a fully fair and equitable market, the CFPB should be granted authority over the auto market to directly enforce the Equal Credit Opportunity Act and all relevant antidiscrimination legislation.

Avoiding the Debt Cycle: Problems with Payday Loans

Photo: Dan Iggers

Photo: Payday loan shop. Dan Iggers, Flickr, Creative Commons

recent report by the Consumer Financial Protection Bureau (CFPB) confirms what many consumers have experienced and many advocates have long claimed: payday loans are inherent debt traps, locking borrowers in a cycle of rollover loans that can last several months and ultimately cost hundreds of dollars in interest. With 80 percent of consumers rolling over payday loans five to six times, interest rates for these loans climb into the triple digits. Regulations are needed to protect consumers from harmfully designed and largely unchecked products in the financial marketplace.

The future of these products will affect many low-income Latino and other minority consumers. Significant racial and ethnic disparities exist in access to mainstream financial services. Research from the FDIC shows that 53 percent of Blacks and 43 percent of Hispanics are either unbanked or underbanked. This leaves little choice for these communities when seeking products and services to meet their financial needs.

Unfortunately, the most ubiquitous and convenient providers of these alternative financial products are payday loan lenders, nationally numbering more storefronts than McDonald’s and Starbucks combined. A new study released by the Center for Responsible Lending found that race and ethnicity are the leading factors in determining payday lender locations, with concentrations of these businesses in lower-income and largely minority communities.

USCurrency_Federal_ReserveAccording to testimony before the Senate Banking Committee, over 58 percent of payday loan borrowers report using them to pay monthly expenses such as utilities, rent, and food. However, a payday loan used to cover these basic expenses will usually require a balloon payment averaging $400 from a borrower’s very next paycheck. This results in a pattern for countless borrowers who pay off their loan and then immediately take out another loan to cover their cost of living expenses. This revolving door of loans creates a debt trap that can leave borrowers in a worse financial position than before they took out the original loan.

The CFPB recognizes the importance of addressing this issue. A recent CFPB field hearing in Nashville, Tenn., focused on payday loans. According to CFPB’s Director, Richard Cordray, given the need for more consistency and oversight in payday lending, the agency intends to issue a rule in the near future.

NCLR welcomes any effort to reduce household debt and help Latino families continue recovering from the economic crisis, and we will watch closely for CFPB action on this issue. While access to small-dollar credit is critically important for low-income families, the current structure of payday loans leaves little choice but to roll over loans once a borrower is ensnared in a debt cycle. When the interest and repayment terms prevent a reasonable likelihood of paying off the total balance, consumer protections vanish.

Consumers now have a federal agency to monitor nonbank products such as payday lending, which went unregulated for too many years. The CFPB has a responsibility to ensure that any forthcoming rules adequately protect consumers, especially those who are most financially vulnerable.