New payday loan rule could hit black and Latino borrowers hardest

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The Trump administration this week rejected a rule aimed at protecting workers from payday lenders.

This isn’t just the latest example of a business-friendly White House putting corporate interests ahead of consumer interests.

It is also the latest example of Trump ignoring the economic disadvantages of black and Latino Americans and other people of color.

At stake is a common-sense regulation formulated by the Consumer Financial Protection Bureau under former President Obama.

It required payday lenders to make “reasonable” assurances that low-income borrowers could repay loans that typically carry annual interest rates as high as 400%.

The idea was to prevent people from getting trapped in endless cycles of high-interest debt by repeatedly taking out new loans to pay off previous obligations.

More than 80% of personal loans end up being rolled over into new loans or followed within days by a new loan, the CFPB determined in 2014. Half of all payday loans result in 10 more loans to cover the original debt.

“Payday lenders are preying on the poor, low-wage and people of color,” said Linda Sherry, spokeswoman for advocacy group Consumer Action.

“The federal agency specifically tasked with protecting consumers from financial abuse has thrown consumers under the bus,” she told me.

Christine Hines, legislative director of the Assn. consumer advocates, echoed that sentiment.

“Payday lenders disproportionately target Black and Latino communities, peddling their high-cost loans on working families and trapping them in a cycle of debt,” she said.

The CFPB, under Trump-appointed director Kathy Kraninger, says deregulating payday lenders will “maintain consumer access to credit and market competition” by making it easier for people to hand on some quick cash.

“A vibrant and well-functioning financial market is important for consumers to access the financial products they need and ensure they are protected,” Kraninger said in a press releaseignoring his own agency’s data on the dangers of payday loans and car titles.

The CFPB has determined that many short-term loan recipients are “likely to remain in debt for 11 months or more,” making them permanent sources of income for a $50 billion industry that preys almost exclusively on debt. poor and financially challenged.

The Pew Charitable Trusts have determined that 12 million American adults take out payday loans each year, with the average borrower receiving eight loans of $375 each and paying $520 in interest.

He revealed that black people are at least twice as likely as others to apply for payday loans.

Twelve percent of black Americans turn to high-interest loans to make ends meet each year, Pew found, compared with 6% of Latinos and 4% of whites.

Bartlett Naylor, financial policy advocate for Public Citizen, said reducing liability for payday lenders “bleeds blood into already turbulent waters.”

“And yes,” he told me, “in the end it’s a racist decision.”

Maybe it’s a reflection of the times, maybe just a lucid appreciation of the economic landscape. Either way, consumer advocates see an administration implementing policies that go out of their way to harm people of color.

“Pure and simple, the CFPB has put working families of color at increased risk of falling into debt traps,” said Mike Litt of the US Public Interest Research Group.

Along with racial disparities, Pew found that the use of payday loans is higher among renters, people without a college degree, and people who are separated or divorced.

Knowing all of this, the CFPB originally expected the new safeguard to come into effect last summer.

The Trump administration delayed implementing the rule in response to complaints from payday lenders that the ability to pay requirement was too onerous and would reduce profits.

D. Lynn DeVault, President of the Community Financial Services Association. of America, the leading trade group for payday lenders, praised the administration for scrapping the rule entirely.

She said it was “simply impractical” to require payday lenders to review the creditworthiness of loan recipients.

Fun fact: The payday lenders first held their annual convention at the Trump National Doral Miami resort in 2018 and returned to the Trump-owned property last year.

The industry has contributed more than $1.2 million so far in the current election cycle, according to the Center for Responsive Politics. Three-quarters of that money went to Republicans.

Short-term lending advocates are correct that borrowers often may not qualify for traditional bank loans and that the high interest rates simply reflect the higher risk of lending to people who live on a paycheck. the other.

That’s why the CFPB was right not to get too tough on payday lenders. The companies provide a necessary service to millions of Americans.

That said, it’s clear that much of this business relies on forcing people to keep taking out new loans and thus remain financially enslaved – and, yes, I use that word deliberately.

Payday loans are a form of economic bondage, forcing borrowers into companies that know full well they benefit the most when customers have no escape.

There is no rational defense against such malicious business practices.

The CFPB under Obama was lucid about the usefulness of payday loans. He repeatedly stressed that he was not trying to put payday lenders out of business.

Rather, he wanted lenders to behave responsibly, making funds available without trapping people in perpetual debt.

The CFPB under Trump has different priorities, including giving financial service providers as long a leash as they want.

“The bureau protects consumers from unfair, deceptive or abusive practices and takes action against companies that break the law,” said CFPB’s Kraninger.

“We will continue to monitor the small loan industry and enforce the law against bad actors,” she pledged.

If that rings hollow in light of the administration’s latest consumer-unfriendly measure, you’re not mistaken.

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