Are Maine’s predatory lending protections about to go national?
This morning in Kansas City, Missouri, Consumer Financial Protection Bureau (CFPB) head Richard Cordry formally unveiled a long-awaited proposal to rein in the worst practices of the payday lending industry.
“Too many borrowers seeking a short-term cash fix are saddled with loans they cannot afford and sink into long-term debt,” said Cordry. “By putting in place mainstream, common-sense lending standards, our proposal would prevent lenders from succeeding by setting up borrowers to fail.”
The release of the rule kicks off a 90-day public comment period where supporters have the opportunity to advocate for broadest, strongest possible rules to prevent payday lenders from taking advantage of loopholes to continue deceptive practices. The public is encouraged to offer comments here.
Last year, predatory lenders across America made over $10 billion by trapping millions of people in short-term, high interest payday loans. These lenders market payday loans as a quick financial fix for people working minimum wage jobs who have nowhere else to turn for help. But with interest rates as high as 600% in some states, many borrowers have trouble repaying the loans, often taking out multiple loans and becoming trapped in a cycle of debt, owing more of each week’s paycheck to Wall Street lenders.
Consumer advocates have long called for action to help the millions of Americans caught in this cycle of debt and this summer there may finally be progress.With this proposed rule, the CFPB aims to curb some of the worst practices of the industry practices and have the same rules apply to payday lenders as any bank or credit union such as being required to check a borrower’s ability to pay or determining whether the borrower has outstanding loans with other lenders.
Maine is one of 24 states that have imposed some sort of regulation on payday lenders, capping the interest rate on short-term loans and requiring all lenders be licensed through the Bureau of Consumer Credit Protection and post a $50,000 consumer protection bond with the state. A 2007 report by the Center for Responsible Lending estimated that Maine’s payday lending rules have kept over $25 million dollars annually in Maine communities rather than the pockets of Wall Street firms.
Despite the clear benefits these rules have had on Maine communities, the payday industry has nevertheless attempted over the years to roll back Maine’s lending rules. In 2005, an industry sponsored bill tried to raise the cap on allowable interest rates on loans and exempt lenders from Maine’s Consumer Credit Code, which protects Mainers from abusive debt collection practices.
A preliminary analysis of the proposed rules shows that while there is much to support, there are concerns about potential loopholes that, if left open, would be easily exploited by the payday lending industry. Consumer advocates are likely to push for the broadest, strongest possible rules to prevent the payday lenders from circumventing the new rules.
“Maine has been a leader on this issue and our communities are better off because of it. The last thing we need is for the payday industry to weaken these proposed rules and potentially undermine Maine’s long-standing work on this issue,” said Andrew Francis of the Maine People’s Alliance. “As the comment period opens, MPA members will be ready to weigh in and call on the CFPB to follow Maine’s lead and issue strong, broad rules that protect all Americans from unscrupulous predatory lenders.”
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