New Jersey Consumer Protections Remain Crucial As CFPB Proposes to Gut 2017 Payday Lending Rule
New Jersey Usury Cap Keeps Loan Sharks at Bay
Newark — Consumers in states burdened by predatory payday lending are reeling from this week’s announcement that the Consumer Financial Protection Bureau (CFPB) plans to gut its 2017 Payday Lending rule. Fortunately, New Jersey already has the most effective protection in place, a 30 percent cap on annual interest rates for payday loans. This cap saves New Jersey families nearly $350 million in abusive payday and car title loan fees per year.
“New Jersey Citizen Action opposes any changes to the CFPB’s payday and auto title loan rule that would weaken common sense protections against predatory high cost small dollar loans in payday-free states like New Jersey,” said NJCA Financial Justice Organizer Beverly Brown Ruggia. “Until Congress does the right thing by enacting a national debt rate cap, the CFPB rule must be implemented in full force as written to help protect New Jerseyans who continue to by preyed upon by unscrupulous and abusive online payday lenders.”
“Access to affordable, non-predatory credit is essential for the economic security of people and families across New Jersey and the nation, which is why the CFPB’s Payday Lending rule is such a vitally important regulation to maintaining national—and online—protections against people receiving loans that they will never be able to repay,” said Demelza Baer, Senior Counsel and Director of the Economic Mobility Initiative of the New Jersey Institute for Social Justice. “Eliminating the requirement that lenders determine that a borrower can reasonably repay the loan is bad for consumers and our economy. We strongly urge against it.”
The CFPB is not legally authorized to cap interest rates, so the 2017 rule was designed to protect consumers by requiring lenders to make affordable loans – loans that borrowers can pay back without taking out another loan in order to cover living expenses. This ability-to-repay standard was expected to reduce the harms of predatory lending across the nation overall by disrupting the payday and car title lending business model, which depends on trapping borrowers in cycles of unaffordable debt.
Sadly, the ability-to-repay provision is now under attack, as the CFPB under the Trump administration, acting in payday lenders’ interest, moves to undo protections built on 5 years of research, data collection, field hearings, and public comments, even though no new evidence supporting repealing the rule has come to light.
Payday and car title lenders have a long history of exploiting loopholes where they can find them and creating more loopholes if they can. State usury caps prevent this exploitation. The rate cap also ensures that borrowers are protected against the harms of these high-cost loans regardless of whether they are structured as short-term or long-term loans.
A two-page summary of the original CFPB payday rule can be found here: http://stopthedebttrap.org/wp-content/uploads/2019/02/stdt-summary_cfpb_2017_payday_rule.pdf.
Members of the public can submit comments to CFPB for the next 90 days: https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/cfpb_payday_nprm-2019-reconsideration.pdf.