Theory of Change, Part III: Equitable Lending and Investments

June 2nd marked a major milestone of another campaign that illustrates Woodstock’s Theory of Change. On that day, the Consumer Financial Protection Bureau (CFPB) issued proposed rules that would govern payday and car title loans. These rules represent a major achievement for Woodstock and for the many groups that have been working for years to protect consumers from abusive payday lenders.

Woodstock’s work on payday loans dates back to 1999 when Woodstock became a member of the Monsignor John Egan Campaign for Payday Loan Reform.  The Egan Campaign included research and policy organizations such as Woodstock and Citizen Action/Illinois, as well as religiously-affiliated entities and other consumer protection groups.  The Egan Campaign was successful in achieving major statewide reforms in 2005 and 2010, but even with these reforms, payday lenders were able to make loans to consumers without having to determine whether consumers could repay them.

 

Woodstock’s Theory of Change always begins with a problem – in this case, abusive payday lending – and is followed by applied research – in this case, a report published in May 2013 called The Case for Banning Payday Lending: Snapshots from Four Key States.  The report features the experiences of four states -- California, Illinois, New York, and North Carolina – and concludes that the ideal policy is to ban payday lending altogether.  The only means by which a ban could be accomplished would be a federal law or regulation capping interest rates at or around 36% (or lower), but this was an unrealistic goal for two reasons: (1) passing a law through Congress was not politically viable, and (2) the CFPB lacks the authority to set interest rates.

 

The CFPB does, however, have the authority to regulate the payday loan industry in other ways.  In early 2015, the CFPB began to focus in earnest on the payday loan industry.  To help inform and guide the CFPB’s work, Woodstock met with CFPB officials, including CFPB Director Richard Cordray.  In April 2016, Woodstock co-hosted a community roundtable.  At the roundtable, advocates urged the CFPB to develop a strong rule that would protect consumers from payday loan debt traps.

 

“Systems Change,” which is the final stage of Woodstock’s Theory of Change, formally began on June 2 when the CFPB unveiled proposed rules on payday and car title lending.  These rules have the potential to save Illinois residents millions if changes are made before the rules are finalized.  For most loans, the rules would require lenders to determine whether a borrower has the ability to repay the loan without defaulting on other bills and without re-borrowing.  But, the rule also allows for too many exemptions and leaves open too many loopholes for the ability-to-repay standard to meaningfully reduce the harm of predatory lending.  In the coming months, Woodstock will be advocating for the elimination of these exemptions and other loopholes in the proposed rules.