Payday & Auto Title Lending Reform

Repost – Originally posted by Helping Hands on June 6, 2016:

Helping Hands Ministry supports CFPB rules, advocates for even stronger protections
June 6, 2016

Last Thursday, June 2, the Consumer Financial Protection Bureau (CFPB) unveiled a proposed rule that would place increased consumer protections around predatory payday and auto title loan businesses. At the heart of the rule is the establishment of an ability-to-repay assessment of potential borrowers. Presently, payday and car title lenders are not required to assess the borrower’s ability to repay the loan while also fulfilling other financial obligations. As a result, many borrowers find themselves refinancing and/or “flipping” (taking out multiple loans in succession) these loans that often carry annual percentage rates of 500+%, according to Rucker Preston, Executive Director of Helping Hands Ministry of Belton.

Preston also shared that while the foundational premise of the rule is on-target, the specifics miss the mark in several important ways. There are certain exemptions to the ability-to-repay requirement, for both short- and long-term loans; the protections against loan flipping are weak; and there is a loophole in the ability-to-repay requirement that would allow lenders to seize payments from repeat borrowers’ bank accounts based on amounts they have deducted from borrowers’ accounts in the past, whether or not such payments are truly affordable for borrowers.

Payday and auto title loans have devastating effects for low and middle-income Texans and, in turn, place significant strain on nonprofits and social service agencies such as Helping Hands Ministry. As an organization, Helping Hands Ministry became concerned with payday and auto title loans several years ago when it became evident that many clients who requested financial assistance for rent or utilities were indebted to payday or auto title lenders. Numerous families have shared their stories of loan entrapment with Helping Hands staff; recently, the Sanchez* family came to Helping Hands Ministry, requesting assistance with a loan payment.

Mr. Sanchez is a husband, father of 2, and disabled veteran who is unable to work and relies on disability benefits as his primary source of income. When the family came up short on rent, they took out an auto title loan in the amount of $2,500 on their only vehicle. After making rollover payments for 10 months, the Sanchez family had paid $3,500 in fees, yet still owed the entire $2,500 principal (payments at such businesses do not pay down the principal amount of the loan at all; repayment of the principal is expected in a lump sum). The family came to Helping Hands Ministry because they knew if they missed the payment, their car would be repossessed, leaving them without any transportation. This would mean missed medical appointments at the VA for Mr. Sanchez, inability for Mrs. Sanchez to get to her job, missed school for the children, and no access to a grocery store (the closest store was 4 miles away).

Helping Hands Ministry supports strong CFPB rules, not only on economic and social grounds, but also on the beliefs they hold as professing Christians. Scripture is clear in its exhortation to deal justly and generously with the poor, to avoid exacting interest, and to speak up for those who are oppressed. “As a faith-based organization that seeks to provide for our neighbors in need as Scripture commands, we see no option but to support a ruling that will deal justly with our neighbors who are vulnerable to the predatory practices of payday and auto title lenders,” Preston stated. “We are asking friends and neighbors to come alongside the CFPB,” added Director of Community Partnerships Kristen Bulgrien, “by showing support for the proposed rule and asking them to make it even stronger by requiring an ability-to-repay determination on every loan, no exceptions; limiting total indebtedness in all covered short-term loans to 90 days per year, consistent with the FDIC standard; closing the loophole in the ability-to-repay assessment that would allow lenders to automatically withdraw payments from borrowers’ bank accounts, whether they are affordable for the borrower or not; and ensuring that all loans that give lenders extraordinary leverage to extract repayment would be covered  by the new rule.”

The CFPB rule is open to public comment until September 14, 2016, and a final determination will be made at that time, based on citizen feedback. Preston and Bulgrien  urge Central Texans to comment and show the CFPB their support by visiting http://stoppaydaypredators.org/texasfairlending.

  • There are over 3,400 separate payday and auto title lenders in the state of Texas. That’s more than all of the Whataburgers, Starbucks, and McDonald’s restaurants in the state combined.
  • Due to loopholes in Texas law, payday and auto title lenders can charge an APR of over 500% in fees.
  • Statistically, almost one-third of Texas residents seeking financial aid from establishments similar to Helping Hands are trapped in debt by predatory lending.
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