Payday Lending

UPDATE:

A new rule released today by the Consumer Financial Protection Bureau (CFPB) will reduce the harms of short-term payday lending to Oklahoma families, but state protections remain crucial to prevent predatory lenders from exploiting loopholes in the rule.

Payday lending costs OK families over $50 million in annual fees and interest. “Oklahomans use more of these loans per capita than residents of any other state,” said Rev. Lori Walke, VOICE leader with Mayflower Congregational United Church of Christ. “So many Oklahomans are trapped in long-term debt at triple-digit interest rates. Thank goodness the CFPB exists to create these types of rules, as our state legislature seems unwilling at this point to protect Oklahomans from these predatory lenders.” 

Borrowers routinely pay more in fees than the amount they borrow for what is marketed as a quick fix for a cash shortage. Many end up with unpaid bills, overdraft fees, closed bank accounts and even bankruptcy.

“We asked people in our congregation to look at the CFPB’s proposed rule on payday loans last summer,” said Fr Tim Luschen, VOICE leader and pastor of St Charles Borromeo Catholic Church. “They shared stories of growing up in households with payday loans, of employees becoming entrapped by debt, of family members being hounded by collectors, in spite of health issues, mental illness, and other emergencies.” VOICE collected over 1,000 comment cards urging the CFPB to strengthen its final rule.

The CFPB is not legally authorized to cap interest rates, so the new rule protects 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. 

The CFPB makes it clear that the rule is a floor for consumer protections, not a ceiling, and that it does not prevent states from enacting stronger laws, such as a rate cap.  

Pastor Lee Cooper, VOICE leader and Pastor of Prospect Baptist Church, added, “Payday loans hit communities of color even harder. As churches, we stand together to urge our congressmen to protect this rule from being reversed.”

Although today’s rule addresses only the ability-to-repay standards for short-term loans, it does recognize that long-term high-cost loans are also harmful. The CFPB is continuing their work to address those too. Payday lenders have a long history of exploiting loopholes where they can find them, and 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.

Fr Luschen points to last year’s efforts in Oklahoma to keep lenders from creating a new payday-type long-term debt product as evidence that as important as the CFPB rule is, state leaders must remain vigilant. “We are so appreciative that Gov. Fallin vetoed this predatory legislation, but it should never have gone that far. Our legislators need to work on the state budget, not on new ways to trap struggling families in debt.”

The full CFPB rule can be found here: https://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/payday-vehicle-title-and-certain-high-cost-installment-loans/

 

 

CHOICE Act

In 2017, the Consumer Finance Protection Bureau (CFPB) is expected to issue its final set of rules for payday lending. Sadly, powerful interests in Washington, D.C., are attempting to gut the rule and the CFPB's regulatory authority over payday lending through the CHOICE Act, which the entire Oklahoma Federal House delegation recently voted to support. Now, more than ever, we must remind our senators that in Oklahoma:

  • We take out more payday loans per capita than any other state.
  • The average loan is for $394, with an average interest rate of 391%.
  • The average borrower in Oklahoma takes out 9 payday loans per year, with 87% getting a new loan in the same period as a previous loan.
  • A 2012 study by the Pew Charitable Trust found that more Oklahomans had 17 loans in a year than had just one loan in a year.

But statistics only tell part of the story. Susan Hakel, a mother whose son got caught in the payday loan trap, shares this account of what happened to her family:

In 2010 my son went to work for Verizon in Phoenix, AZ. About six months later he found himself short of cash and went to a Payday loan company for a short term loan of $300. The agreement was that $450 was to be directly debited from his next paycheck.  My son was let go from his job later that week, and didn't realize that his final paycheck would not be directly deposited as usual.  There were insufficient funds in his bank account so the loan debit "bounced", triggering penalty charges both at the loan company and at the bank.  The check was "bounced" back and forth many times over the next week (we estimate the payday loan office resubmitted it twice a day) while my unsuspecting son was busy moving back to Oklahoma City.

Ten days later the bank charges were up to $600 and the Payday loan shark listed penalties, interest and principal of the $300 loan at $600.  We went to the bank to ask how we could make the endless cycle of bouncing the loan back and forth stop. The bank said they could accept $400 in cash to zero out the bill with them and they would put a "stop" on the bouncing for 30 days to give my son time to settle up with the Payday folks.  Without my infusion of cash, there would have been no way for my son to have escaped from the spiraling debt, since even if he got a job immediately, he would not have had a paycheck big enough to pay everyone off at once.   It became clear to me that the loan company (and the Chase Bank for that matter) made windfall profits not only from excessive interest rates, but from the extra fees they are able to generate.

Dr. Lee Cooper, pastor of Prospect Baptist Church, has fought against the payday lending trap for years, instituting budget and money management classes in his congregation and preaching against these types of loans. “Just as Jesus drove out the moneychangers so should payday loans be outlawed,” he says. “According to Jesus, the moneychangers were a ‘den of robbers’ who undoubtedly charged exorbitant rates, thus taking advantage of those who seemingly had no other options. This is the exact same reasoning of the payday loan industry: they argue that they make loans to people who otherwise would not be able to obtain loans through conventional means.”

“Black Americans earn 70 cents per dollar that whites earn, making Black Americans more vulnerable,” he says. “Payday lenders are notorious for targeting communities of color. At a time when wealth building has never been more urgent – particularly in our community – payday lenders are just draining it away.”

In fact, payday lenders charged Oklahoma families $52 million in fees in 2015 alone. That’s $52 million that didn’t get spent in the local economy, at grocery stores, auto dealers, and other retailers.

 

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