SAN FRANCISCO, May 15, 2019 – The California Reinvestment Coalition (CRC) submitted a letter to the Consumer Financial Protection Bureau (CFPB) yesterday, sharply criticizing the Bureau’s Trump-appointed director Kathy Kraninger, for delaying and/or eliminating an “ability to repay” requirement included in new federal rules for payday, car title, and high-cost installment loans. The requirement was slated to go into effect in August 2019, but the CFPB is now proposing to either eliminate it or delay implementation until Nov 2020, and is seeking public input on both proposals.

“After four years of research, hearings and public input, we thought borrowers would finally be protected from the ‘debt trap’ by this common-sense rule,” explains Paulina Gonzalez-Brito, executive director of CRC. “The ‘ability to repay’ requirement would have been a simple and effective way to protect low-income families from predatory lenders while preserving their access to credit. Instead, the CFPB director is giving the green light to lenders to continue making bad loans that ruin people’s finances, drain their bank accounts, and destroy their credit.”

In a 2014 study, the CFPB found that four out of five payday loans are rolled over or renewed within 14 days, suggesting the majority of borrowers can’t afford to pay back the loans and are forced into costly roll-overs. The “ability to repay” requirement would have addressed this problem by requiring lenders to confirm that a borrower had sufficient income to afford the added cost of loan payments before making the loan.

In California, payday and car title lenders extract $747 million in fees from borrowers every year, according to research from the Center for Responsible Lending. Seventy percent of payday loan fees collected in California in 2017 were from borrowers who had seven or more transactions during the year, according to the California Dept. of Business Oversight, confirming advocate concerns about the industry profiting off the “payday loan debt trap.”

Additional Background

CFPB Rules on Payday, Car-Title, and High-Cost Installment Loans

  • The CFPB began its rulemaking process in March 2015, and an estimated 1.4 million people gave their input on the CFPB rules as part of that process.
  • CRC coordinated with more than 100 California nonprofits that submitted letters in 2016 in support of the CFPB’s proposed rules.
  • A 2014 CFPB study looked at more than 12 million payday loan transactions and found that over 80% of the loans were rolled over or followed by another loan within 14 days- a cycle advocates have labeled “the payday loan debt trap.”

Payday and Car Title loans in California

The California Department of Business Oversight (DBO) releases an annual report on payday loans in California. Its most recent report is based on 2017 data:

  • 52% of payday loan customers had average annual incomes of $30,000 or less.
  • 70% of transaction fees collected by payday lenders were from customers who had 7 or more transactions during the year.
  • Of 10.7 million transactions, 83% were subsequent transactions made by the same borrower.

The DBO also releases an annual report on installment loans (including car title loans). Its most recent report is based on 2017 data:

  • Loans for amounts between $2,500 and $4,999 represented the largest number of installment loans made in 2017. Of those loans, 59% charged Annual Percentage Rates (APRs) of 100% or higher. (California law does not cap APRs for loans greater than $2,500).
  • Sixty-two percent of car-title loans in the amounts of $2,500 to $4,999 came with APRs of more than 100%.
  • 20,280 car-title borrowers lost their vehicles to lender repossession.