The US Consumer Financial Protection Bureau’s (CFPB) announcement last Thursday that it will delay implementing key parts of its rule regulating payday, vehicle title, and other high-cost installment loans by 15 months, will leave borrowers vulnerable to serious threats posed by these loans, which often carry triple-digit interest rates.
The rule, finalized in November 2017 after extensive consultations with many stakeholders, was meant to better protect vulnerable consumers from payday and other small-dollar, short-term predatory loans. But Kathy Kraninger, the recently appointed director of the CFPB, proposed major changes to the payday rule in February this year, just two months after her appointment. In addition to proposing a delay to the rule’s implementation, the CFPB also proposed repealing key borrower protections, including a requirement that lenders ensure that borrowers can actually repay their loans.
Borrowers, who often live paycheck to paycheck, can fall into debt traps when they are unable to keep up with payments. They may have to take out new loans to repay the old ones, creating a cycle of growing debt. In some cases, people can end up owing much more than they originally borrowed, and may forego food, rent, or other basic needs to pay back their loans.
Human Rights Watch joined 130 consumer, civil and human rights, labor, and community organizations in opposing the CFPB’s proposed delay in implementing the rule. Human Rights Watch also opposed the rollback of critical consumer protections, highlighting our research into the impacts of predatory, high-interest loans on Native Americans.
The CFPB should require companies to comply with the payday rule, as originally intended, by August 2019. The CFPB should also retain all parts of its rule, including the ability-to-pay requirement on lenders, and stop putting vulnerable borrowers at the mercy of loans they will struggle to repay.