Op-Ed: The CFPB Continues to Strip Consumer Protections Against Predatory Lending
In January, I shared my hope that Kathy Kraninger, then-newly appointed Director of the Consumer Financial Protection Bureau (CFPB), would demonstrate real leadership and refocus the CFPB to carry out its original purpose—protecting consumers. Unfortunately, Kraninger has spent the months since supporting financial institutions over consumers. The CFPB has proposed new rules and revisited old ones to limit its own regulatory authority, relieve lenders of hard-fought for data collection and reporting requirements, and protect corporate profits with little regard of the harm to consumers. I am particularly concerned by recent attempts to rescind the CFPB rule to establish ability-to-repay requirements for payday and vehicle title loans. This would be a major setback for consumer rights and is antithetical to the CFPB’s founding purpose to protect consumers from predatory financial institutions.
Low- and moderate-income communities, especially communities of color, continue to feel the devastating effects of the financial crisis and the Great Recession. Asian Americans and Pacific Islanders (AAPIs) were particularly hard hit— in fact, economic gains since the Great Recession have led to declining poverty rates for most racial/ethnic groups except AAPIs whose poverty population levels have not yet fallen below their Great Recession peak. The Recession impacted disproportionately immigrant and refugee communities because of their limited proficiency with English and lack of understanding of American banking and financial systems. And importantly, our most underserved community members continue to be vulnerable to predatory lenders and payday loans.
AAPIs are also the fastest growing racial group in the country – growing over four times as rapidly as the total US population—and expected to double to over 47 million by 2060. Contrary to the ‘model minority’ myth, AAPIs in fact have the highest levels of income inequality of any other racial or ethnic group nationwide. This is compounded by the fact that AAPIs have both high levels of language diversity (fully 77 percent of Asians and 43 percent of Native Hawaiians and Pacific Islanders speak a language other than English at home) and high rates of limited English proficiency (40 percent of Asians and 15 percent of Native Hawaiians and Pacific Islanders), leaving them particularly vulnerable to the duplicitous and predatory practices of big banks and alternative financial service providers.
Most of us have heard of payday lending but many of us don’t understand the long term harm that these loans do to low-income communities of color, nor do we understand the scale of the problem. Also known as cash advances or direct deposit advances, these seemingly ‘easy’ to secure loans are in fact traps for consumers with limited liquidity (mostly Black, Latinx, AAPI, and other low-income communities of color). With an average interest rate of 300-400%, payday loans benefit predatory lenders to the tune of $400 billion per year in fees alone. As context, this figure is larger than the GDPs of Ireland or Singapore. Consumers are trapped in a cycle of debt – invariably, they lose their bank accounts, incur exorbitant overdraft fees, their credit scores are impacted negatively, and some even end up filing for bankruptcy. Payday lenders intentionally target unbanked and under-banked communities because of their lack of access to or knowledge of financial institutions. Coupled with linguistic isolation, this makes them vulnerable to seemingly ‘quick fix’ loans, especially when they are literally living from one paycheck to the next. Indeed, a scan of our members revealed that the Pacific Islander community is particularly impacted by payday lending.
The CFPB spent more than five years gathering information and collecting public input – more than one million public comments were submitted – before the agency finalized a rule that would require payday and vehicle title lenders to establish ability-to-repay requirements for their loan products. With the recent move to rescind this rule, the agency is signaling clearly that it prioritizes profit over consumer protection. Even worse, the CFPB acknowledges that these loans harm consumers. And, by disregarding five years of data collection and public input, the agency is sending a message to consumers that it is willing to overlook empirical data to advance the interests of financial institutions.
The CFPB exemplifies an inherent contradiction seen across this Administration—using the very agencies, institutions, and policies created to advance equity and justice for communities historically and institutionally left behind to dismantle the progress made for those communities. Notably, the Administration inherited the CFPB when it was just beginning to implement some of the most critical elements of its regulatory oversight – from disaggregated data collection under the Home Mortgage Disclosure Act (HMDA) to the ability-to-repay payday lending rules. Especially at a time when many see the “ghosts of Recession past” in the market, a CFPB that functions with restored rules and protections is imperative. Indeed, the threat of another market collapse requires that we demand more robust and far-reaching protections that prioritize the needs of our most vulnerable community members.
I still think that Director Kraninger has an opportunity to demonstrate real leadership. I was especially heartened by the agency’s extension of the public comment period for proposed changes to HMDA data through the fall. In January, I was hopeful that Director Kraninger was “focused on the consumers.” This is her opportunity to demonstrate that focus to consumer advocates and the communities we work with.