Herring opposes Trump administration rollback of protections for payday loan borrowers
Attorney General Mark Herring has joined a coalition of 25 attorneys general opposing the Trump administration’s efforts to eliminate rules protecting consumers from abusive payday and vehicle title loans.
The states filed an official comment letter with the Consumer Financial Protection Bureau (CFPB) opposing its proposed repeal ofrules adopted in 2017 to protect consumers from excessive interest rates and other predatory practices that trap consumers in cycles of debt, while preserving access to less-risky types of short-term credit. The letter argues that eliminating the 2017 protections, which were set to go into effect in August 2019, would harm consumers, reduce states’ ability to protect their residents from predatory lending, and is inconsistent with the CFPB’s legal obligations to protect consumers from unfair and abusive practices.
“Small-dollar loans like payday or vehicle title loans can trap low-income Virginians in a seemingly never ending cycle of debt,” said Attorney General Herring. “Under the Trump administration, the CFPB has continued to shirk their responsibility of protecting consumers in favor of protecting predatory lenders. We need stronger laws and regulations on these predatory lenders and I won’t back down in fighting to make sure that Virginia consumers are protected from their exploitative practices.”
Payday loans are high-interest, short-term loans that must be paid in full when the borrower receives their next paycheck. Payday lending can trap lower-income people who do not otherwise have access to consumer credit in endless cycles of debt. According to the Pew Charitable Trusts, the average payday loan borrower earns about $30,000 per year, and about 58 percent have trouble meeting their monthly expenses. The average payday borrower is in debt for nearly half the year because they borrow again to help repay the original loan. The average payday borrower spends $520 per year in fees to repeatedly borrow $375. Vehicle title loans are similar to payday loans, but they also require borrowers to guarantee a loan with their car or truck title. This means that if a borrower defaults, the lender can seize their vehicle.
In 2017, approximately 96,000 Virginians took out more than 309,000 payday loans totaling nearly $123 million with an average APR of 254%. More than 122,000 Virginians took out approximately $155 million in car title loans in 2017, and nearly 12,000 Virginians had their cars repossessed and sold for inability to repay a car title loan.
In 2017, the CFPB finalized a rule that requires lenders to determine in advance whether consumers have the ability to repay loans that are due all at once, capped the number of consecutive short-term loans lenders can make to the same consumer at three, and preserved access to less-risky short-term loans that allowed consumers to pay off debt over time. While the rule went into effect in early 2018, compliance was delayed until August 19, 2019 to give lenders time to develop systems and policies. Now, less than 18 months after the rule was adopted, the Trump administration is attempting to rescind it. In March, the same coalition of 25 states opposed a separate attempt by the CFPB to further delay implementation of the rule.
The proposed rollback of the 2017 payday lending rule violates the law and harms the states by:
- Allowing lenders to prey on vulnerable consumers: The CFPB developed the 2017 payday lending rule after five years of study and analysis that persuasively documented how the payday and vehicle title lending industries abused consumers and trapped them in cycles of debt. Now, by rolling back these protections, the CFPB would once again allow lenders to prey on poor and desperate consumers without restriction.
- Undercutting states’ efforts to protect their residents: In their letter, the states explain that rescinding the 2017 payday lending rules would make it much harder for states to protect their residents and enforce their own laws. By declaring certain payday lending practices unfair and abusive, the 2017 rules gave states additional ways to protect their residents. Additionally, by creating national minimum standards for payday lenders, the rules closed loopholes that lenders previously exploited to get around state laws. If the payday lending rules are rolled back, lenders would have significant opportunities to escape state regulation.
- Acting against the CFPB’s mission to protect consumers: The attorneys general argue that CFPB was established in 2010 to protect consumers from unfair and abusive practices. The agency correctly identified certain payday lending practices as harmful and abusive. Now, the CFPB is going through absurd legal contortions to take the rule back. If the CFPB rescinds a rule implemented to protect consumers, it would be acting inconsistently with its duty and contrary to federal law.
Attorney General Herring created the OAG’s first Predatory Lending Unit to investigate and prosecute suspected violations of state and federal consumer lending statutes, including laws concerning payday loans, car title loans, consumer finance loans, mortgage loans, mortgage servicing, and foreclosure rescue services. Since 2014, Attorney General Herring’s Consumer Protection Section has recovered more than $301 million in relief for consumers and payments from violators. The Section has also transferred more than $33 million to the Commonwealth’s General Fund. Following a major reorganization and enhancement in 2016, the OAG’s Consumer Protection Section has been even more effective in fighting for the rights of Virginians.
Joining Attorney General Herring in opposing the repeal of these rules are the attorneys general of California, Colorado, Connecticut, Delaware, the District of Columbia, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Washington, and Wisconsin.