By Equal Voice Action
Payday loans are marketed by financial institutions as a convenient cash advance to help individuals and families make ends meet until their next “payday.” Yet all too often these loans are not helping families get by—they’re making them poorer.
Payday loans can carry extremely high interest rates—upward of 300%—which exploit the financial insecurity of poor and low-income households and ensnare them in a vicious cycle of debt. What are supposed to be “short-term” loans often lead to long-term indebtedness for families while earmarking precious household resources for exorbitant interest payments.
In just one example, a young mother who borrowed $400 for emergency medical treatment for her infant daughter estimates that she has paid more than $10,000 toward the loan—and is still in debt, with severely damaged credit.
Last fall, after five years of work—and a detailed process that included extensive data-driven analysis and public comment, the Consumer Financial Protection Bureau (CFPB) passed a comprehensive rule covering payday loans (as well as auto title loans and other exploitative types of lending), called, in short, the Payday Loans Rule.
The Payday Loans Rule requires lenders to reasonably and realistically determine the borrower’s ability to pay back the loan within the loan period without sacrificing the ability to meet basic living expenses and other major financial obligations—and without having to re-borrow within 30 days of having paid back the loan.
It is exploitative for lenders to provide loans to people who they know will not be able to pay them back without such sacrifices and who are likely to get caught in a recurring “debt trap.”
The Payday Loans Rule became effective in January 2018, but compliance is not required until August. In the meantime, legislative and legal attempts are being made to weaken and set aside the rule to allow such predatory lending practices to continue mostly unchecked.
A broad-based coalition of groups is fighting back to protect the new regulations, however.
On May 9th, as part of a coordinated advocacy effort organized by the Consumer Federation of America, Equal Voice Action Executive Director David Luna joined an Illinois-based delegation to meet with legislators on Capitol Hill in Washington D.C. and advocate for the full implementation of the Payday Loans Rule.
Representing EVA, Luna joined with representatives from the Illinois Black Chamber of Commerce, the Woodstock Institute, and the delegation leader, the Illinois Public Interest Research Group, in meeting with elected representatives from the state of Illinois, including the respective staffs of Congressman Brad Schneider and U.S. Senator Tammy Duckworth.
In addition to advocating for the Payday Loans Rule, the delegation also urged legislators to protect and support reasonable interest rate caps at the state and national level, and to support protections against debt collection abuses, another pending focus of CFPB policymaking.
Supported by additional delegations from other states, the advocacy effort provided a welcome opportunity for EVA to connect with like-minded organizations and allies, and to speak to the interests of poor and low-income households that are routinely targeted and exploited by predatory lenders.
“Predatory lending harms families who are already struggling to make ends meet,” said Luna. “We hope our efforts help ensure that the new regulations protecting families and consumers are retained, and I look forward to the day when EVA delegations from around the country will descend on the Hill to work the high-priority issues identified by EVA members.”