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NALCAB, Public
Citizen, CRL Sue to Restore Payday Lending Protections for
Borrowers in U.S. District Court
CFPB
Repeal Rule Will Leave Consumers at the Mercy of Payday
Lenders’
Abuses
The National Association for
Latino Community Asset Builders (NALCAB), represented by
Public Citizen and the Center for Responsible Lending (CRL),
sued the U.S. Consumer Financial Protection Bureau (CFPB)
today in the U.S. District Court for the District of
Columbia, seeking to overturn a regulation issued in July
2020 concerning short-term payday and auto-title lending.
The regulation repeals
consumer protection measures that the agency adopted in 2017
to protect vulnerable consumers from an unfair and abusive
practice. The lawsuit explains that the 2020 rule is
unlawful under the Administrative Procedure Act and violates
the Dodd-Frank Wall Street Reform and Consumer Protection
Act.
Payday and auto-title loans
are short-term loans that lenders typically offer without
assessing borrowers’ ability to repay. Annual interest rates
can be 300 percent or higher. Lenders’ failure to underwrite
traps many borrowers in expensive cycles of unaffordable
debt. Financially distressed consumers are forced to take
out loan after loan because they cannot afford to repay the
first one.
In 2017, after years of
research and public engagement, the CFPB issued a rule to
address the substantial harm that consumers suffer when
payday and title lenders make loans without reasonably
determining that borrowers can repay. In its 2017 rule, the
CFPB concluded that the practice is unfair and abusive and
adopted measures to protect consumers from the harmful
practice. But in July 2020, the CFPB issued a new rule that
prevents those consumer protections from taking effect.
The new rule repealing the
consumer protections is based on an invented evidentiary
standard and on re-interpretations of Dodd-Frank Act
standards that appear designed to undermine the CFPB’s
earlier consumer protection measures. Serving predatory
lenders rather than consumers, the CFPB’s rule leaves
consumers vulnerable to payday lenders’ abuses, rests on
one-sided portrayals of the 2017 rule’s effects and applies
the agency’s new standards in unreasonable ways. The suit
asks the court to set aside the 2020 rule.
“Payday and auto title
lenders are the proverbial bottom feeders of the financial
services marketplace,” said Noel Andrés Poyo, executive
director for NALCAB. “They make more money when their
customers fail because they seek to catch poor people in a
trap of revolving debt and then use penalties and fees to
fleece them of what little money they earn. Why the CFPB
would ignore its own research and overturn its own rules to
make these abusive practices easier makes no sense, until we
see the volume of political donations flowing from these
unscrupulous companies to decision makers in this
administration.”
“This rule is a slap in the
face to consumers and is particularly ill-timed when so many
people are facing financial distress due to the pandemic,”
said Rebecca Smullin, the Public Citizen attorney serving as
lead counsel on the case. “The CFPB’s rule appears to be
crafted solely to boost lenders’ profits, contrary to the
consumer financial protection mission of the agency.”
“The pain caused by gutting
these protections will be felt most by those who can least
afford it, including communities of color who are
disproportionately targeted by payday lenders,” said Will
Corbett, litigation director at the Center for Responsible
Lending. “The CFPB spent five years developing these
consumer safeguards, taking input from lenders, faith
leaders, veteran and military organizations, civil rights
groups, consumer advocates, and consumers from across the
country.
Reversing course, without any
rational basis for doing so, as the COVID-19 pandemic
continues to ravage the economy, will only push struggling
families closer to the brink.”
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