The Consumer Financial Protection Bureau (CFPB) is in the “late stages” of making a rule to regulate payday lenders. It is critical to let them know that the rule should not include loopholes that lenders can exploit to make expensive, unregulated loans.
The industry has been pushing the CFPB to introduce a narrow rule that only regulates short-term payday loans with a balloon payment. As we’ve seen in Illinois and other states across the country, that’s not enough to stop the debt trap. Once Illinois regulated balloon payment loans, lenders quickly shifted to offering high-cost installment loans. Before the reforms, over 80 percent of small-dollar loans were balloon payday loans, while they made up just 15 percent of small-dollar loans after the reforms.
Installment loans have many of the same factors that trap borrowers in a cycle of high-cost debt, like unaffordable payments, high interest rates, and repeated borrowing. Illinois recognized that it needed to close the loophole in order to protect consumers, and expanded protections to installment loans in 2010.
The same scenario could occur across the country if the CFPB creates loopholes in its regulations. The regulation could come out very soon, so we must act now and let them know that loopholes hurt consumers. Sign on to this letter to the CFPB by the end of the day tomorrow, March 27, by contacting Katie Buitrago at email@example.com or calling 312-368-0310.