Borrower protections gutted from rule; Public comments sought on agency proposal - Brownsville Herald: Local News

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Borrower protections gutted from rule; Public comments sought on agency proposal

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Posted: Thursday, February 7, 2019 10:15 pm

A Consumer Financial Protection Bureau rule finalized in 2017 to shield low-income borrowers from some of the worst practices of payday and auto-title lenders could be gutted before it even goes into effect.

CFPB has proposed eliminating the underwriting provision of the rule that would require lenders to establish a borrower’s ability to pay off the loan. The provision was designed to help protect borrowers from falling into the kind of debt trap commonly associated with high-interest, predatory lending.

In Texas, average Annual Percentage Rates on payday and auto-title loans ranges from 200 percent to more than 500 percent, according to the Texas Fair Lending Alliance. The state stands out as having among the nation’s highest rates and weakest protections for borrowers, said TFLA, which claimed that Texas residents paid $9.2 billion in fees alone on loans between 2012 and 2017.

A 2014 CFPB report found that up to 80 percent of payday loans are rolled into another loan within two weeks, and that it’s common for borrowers to take out eight or more loans a year just to avoid default.

Also between 2012 and 2017, 218,347 families lost a car to an auto-title loan, often after paying more in fees than the original loan value, according to TFLA.

Ann Baddour, director of Texas Appleseed’s Fair Financial Services Project, said the CFPB is proposing to gut the rule — based on five years of research including examination of millions of loan records — without any research into how it will impact borrowers. The rule was supposed to go into effect Jan. 1 but was delayed by the Trump administration.

CFPB Director Kathy Kraninger said in a statement that eliminating the provision would help ensure the industry stays competitive and increase consumer access to credit. Critics characterize it as a big win for the payday loan industry and a big loss for consumers.

“It just seems like an industry play,” Baddour said.

Even more worrisome is a CFPB proposal to eventually eliminate another provision of the rule, one that prevents lenders from “dinging” borrowers’ bank accounts over and over again in an attempt to collect a debt, a practice that drives up overdraft fees for the borrower, she said.

Baddour said the CFPB rule isn’t perfect and could have contained stronger protections, but is an effective compromise — especially combined with local restrictions on lenders implemented by Brownsville and other communities across Texas. She described the CFBP proposal as a “big disappointment.”

“It’s not my disappointment,” Baddour said. “It’s for American families. It’s for Texas families. We’re just basically throwing them under the bus.”

Traci Wickett, president and CEO of the United Way of Southern Cameron County, which champions borrower protections, wrote in an email said it’s “unconscionable that an agency created to protect consumers is stripping consumer protections from payday and auto title loan rules.”

The industry wanted the underwriting provision so it wouldn’t cut into their lucrative refinancing business, she said. Wickett noted that $15.2 million in new loans over the Brownsville-Harlingen Metropolitan Statistical Area in 2015-2016 generated $16.5 million in fees but $26.7 million in refinances, according to a 2016 report from Texas Appleseed.

“Underwriting—assessing the borrower’s ability to repay—is the bedrock of good lending practice and should apply to payday and auto title loans,” she said.

This CFPB proposal has initiated a 90-day public comment period.

“We are absolutely going to be weighing in on this proposal and talking about why it’s harmful,” Baddour said. “I would encourage people across Texas to do same. It’s important to speak out and push back on this move that really is putting payday lenders above our families.”

www.consumerfinance.org

www.texasappleseed.org

www.texasfairlending.org

sclark@brownsvilleherald.com

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