Washington, D.C. – Today, the Lawyers’ Committee for Civil Rights Under Law submitted a comment on the Consumer Financial Protection Bureau’s Notice of Proposed Rulemaking (NPRM) to roll back the 2017 Payday Loan Rule, which regulates payday loans, auto title loans, and other types of expensive loans aimed at low-income communities of color with poor credit. The Lawyers’ Committee also published a report analyzing the economic impact of these loans, finding disproportionate targeting at and harm to these communities.
The Consumer Financial Protection Bureau (CFPB) enacted the Payday Loan Rule in October 2017 after years of outreach, research, and review of over a million public comments from consumer advocates, payday lenders, state regulators, and others. The Rule sought to protect low-income consumers and consumers of color in the lending market who are often victims of predatory loans that trap consumers in cycles of insurmountable debt through exorbitant interest rates. However, in January 2018, the CFPB arbitrarily announced its intention to initiate a rulemaking to roll back the Rule, only three months after it was adopted.
“The Payday Loan Rule establishes vital protections for many low-income consumers and consumers of color across America. Rolling back the rule and other rules like it, would mean less protection for consumers from predatory lenders that often function as debt traps and prey on these vulnerable consumers and their communities”, said Dariely Rodriguez director of the economic justice project at the Lawyers’ Committee for Civil Rights Under Law. “We strongly urge the CFPB to reconsider rolling back these protections and focus on securing financial security for America’s vulnerable consumers, not banks for lenders.”
Under new leadership, the CFPB has prioritized deregulation of the lending market, including payday lending. Consequently, the Bureau acted against consumers and in favor of abusive creditors by rescinding a lawsuit against payday lenders, dropping an investigation of a payday lender that previously made campaign contributions to Office of Management and Budget (OMB) Director Mick Mulvaney, and granting interim waivers of the Rule’s requirements while conducting the rulemaking. On January 23, 2018, Mulvaney affirmed that the CFPB serves “those who use credit cards and those who provide the credit; those who take out loans and those who make them; those who buy cars and those who sell them.”
The CFPB exists to protect consumers, not banks or lenders. The economic research shows that payday and auto title lenders often target low-income consumers and consumers of color, who lack access to traditional loans with reasonable interest rates. Across the country, payday lenders in African-American or Latino neighborhoods outnumber lenders in white neighborhoods two to one. In some areas, the ratio ranges even higher than the nationwide rate; in Chicago and North Carolina, African-American and Latino communities have almost three times more payday lenders than white communities and in California, the ratio is eight to one.
African-Americans and other minority communities have been historically subjected to racial discrimination in the consumer finance industry through policies such as redlining and subprime lending. These policies prevented African-Americans and communities of color from accessing greater economic opportunities to build wealth and credit in the financial sector, which contributed to the pervasive racial and economic disparities seen today. The Lawyers’ Committee seeks to ensure economic justice and protection for low-income consumers and consumers of color, who can no longer turn to the CFPB for relief against predatory lending practices.
In filing the comment, the Lawyers’ Committee for Civil Rights Under Law received support from pro bono counsel Crowell & Moring LLP. The economic analysis was conducted with pro bono support from Bates White LLC.
The CFPB comment is available here and the economic report is available here.
About the Lawyers’ Committee for Civil Rights Under Law
The Lawyers’ Committee for Civil Rights Under Law, a nonpartisan, nonprofit organization, was formed in 1963 at the request of President John F. Kennedy to involve the private bar in providing legal services to address racial discrimination. Now in its 56th year, the Lawyers’ Committee for Civil Rights Under Law is continuing its quest to “Move America Toward Justice.” The principal mission of the Lawyers’ Committee for Civil Rights Under Law is to secure, through the rule of law, equal justice for all, particularly in the areas of criminal justice, fair housing and community development, economic justice, educational opportunities, and voting rights.
Reynolds Graves, Lawyers’ Committee, RGraves@LawyersCommittee.org, 202-662-8375