Jay Williams

In January, Consumer Financial Protection Bureau (CFPB) Director, Kathy Kraninger, continued the efforts of her predecessor, Mick Mulvaney, and proposed a rule change to a regulation that is aimed at stopping the debt trap that some low-income wage earners face when they access payday loans. Payday loans allow advance payments on a paycheck. People most dependent on these loans usually are on a very tight budget. The charges or interest calculations can sometimes be several hundred percent. The CFBP under the Obama Administration had attempted to better regulate the loans that can come with very steep payback costs.

The proposed rule change would remove the “ability-to-pay” regulation imposed on loan providers, which are assessments conducted before a loan is granted to a recipient that determine a recipient’s ability to pay back the loan granted. For more context, a lender conducting an “ability-to-pay” assessment looks like finding out, considering, and documenting a borrower’s income, assets, employment, credit history and monthly expenses as determinants for if the individual can receive the loan. The lenders cannot just use an initial rate to calculate a borrower can repay a loan; they must look at the individual’s ability to pay once that initial rate gets higher.

Advocates for the poor are concerned that the removal of this regulation would increase the ability of payday and car title loan lenders to maintain predatory practices. Currently, it is argued, “what’s in place now is a moderate response to an abusive industry. But this industry doesn’t want moderate consumer protections. It wants none at all,” said Linda Jun, senior policy counsel at Americans for Financial Reform.

Advocates contends that in order to reduce predatory practices, common sense financial regulations must be in place to protect consumers, which is what the current regulations are doing. However, without the regulations in place, 300% APRs will become more commonplace than they already are, and those in lower socio-economic environments will be more negatively affected than they are already.

Some advocacy groups are asking people in Miami, Florida area and other advocates to participate to highlight the issue and create pressure to stop the revisions. From March 18 through March 21, Payday Loan Executives will be attending the Conference for the Community Financial Services Association at The Trump National Doral in Miami. CWLA members can participate in “On-the-Ground-Efforts” in that are geared toward protecting consumers from falling into the debt trap. For more information go to www.stopthedebttrap.org or bit.ly/paydayresources