Federal Regulators Weaken Payday Loan Rules

As Americans struggle to cope with the devastating economic impact of the COVID-19 pandemic, the Consumer Financial Protection Bureau (CFPB) and the Federal Deposit Insurance Corporation (FDIC) took steps to weaken critically important consumer protections from high-cost, payday loans.

The CFPB issued a new final payday loan rule earlier this month that effectively guts the 2017 Payday Rule. The new rule specifically rolls back important underwriting provisions which required lenders to establish the borrower’s ability to repay the loan according to the lender’s terms. This ability to repay standard is critical to protecting consumers from an endless, destructive debt cycle.

“The CFPB is empowering predatory lenders at a time when it should be focused on its mission, to protect consumers in the financial marketplace,” said CFA Legislative Director and General Counsel Rachel Weintraub. “Payday loans already disproportionately harm the financially vulnerable. To prioritize the payday loan industry over American consumers and their families during a financial crisis is not only cruel, but a failure to fulfill [the CFPB’s] mission,” she added.

“By disproportionately locating storefronts in majority Black and Latino neighborhoods, predatory payday lenders systemically target communities of color further exacerbating the racial wealth gap,” said Rachel Gittleman, CFA Financial Services Outreach Manager. Black Americans are 105% more likely than other races and ethnicities to take out payday loans, according to the Pew Charitable Trusts. According to a 2017 FDIC study, 17% of Black households were unbanked and 30% were underbanked, meaning they had a bank account but still used alternative financial services like payday loans, compared with 3% and 14% respectively of white households. “Payday lenders prey on un- and underbanked Americans by offering short-term loans developed to trap borrowers in a debilitating cycle of debt,” Gittleman said.

Payday loans, which often carry an annual interest rate of over 400%, trap consumers in a cycle of debt. The CFPB itself found that a majority of short-term payday loan victims are typically trapped in at least 10 loans in a row—paying far more in fees than they receive in credit.

Meanwhile, the FDIC finalized a rule last month that will encourage high-cost, non-bank lenders to launder their loans through banks in order to offer triple-digit interest loans in states with usury laws. The Office of the Comptroller of the Currency (OCC) had finalized a similar rule a month earlier, but most banks participating in rent-a-bank schemes are FDIC supervised. CFA joined numerous other consumer groups, civil rights organizations, faith groups, and small businesses to condemn the rules in a comment letter earlier this year.

“The FDIC’s rule will facilitate the spread of predatory, high-cost lenders, and promote the evasion of state usury laws,” Weintraub said.

These rules allow banks, which are generally exempt from state rate caps, to sell, assign, or transfer a loan to non-bank lenders and deem that the interest rates permissible by the bank remain permissible after the transfer. Although 45 states and the District of Columbia have imposed interest rate caps on many types of small loans, high-cost lenders take advantage of the bank exemption by entering into rent-a-bank schemes where they launder their loans through these banks to charge exorbitant interest rates, well above state usury rates.

“States have seen the financial wreckage caused by predatory lenders that target the financially distressed and leave them in a devastating cycle of debt,” Gittleman said. “Consequently, states have enacted interest rate caps, which have proven to be the most effective way to protect consumers from unaffordable loans. The FDIC joins the OCC in paving the way for predatory lenders to circumvent state rate caps in the midst of a financial crisis, when they should be protecting consumers rather than enabling rent-a-bank schemes,” she added.

“In the absence of regulatory oversight, Congress must act to protect consumers from high-cost lending schemes,” Weintraub stated. “Rates on high-cost credit should be capped at 36% during the remainder of the COVID-19 emergency and its financial aftermath. Following a temporary fix, Congress must pass H.R. 5050/S. 2833, the Veterans and Consumers Fair Credit Act, to permanently cap interest rates at 36% for all consumers,” she concluded.

House Bill Would Improve Auto Safety, Save lives

Democratic leaders of the House Energy and Commerce Committee included a package of critically important auto safety measures in a major infrastructure bill which passed the House early this month. Consumer and auto safety advocates said the legislation is urgently needed as the most recent estimates from the National Highway Traffic Safety Administration (NHTSA) show that 36,120 people were killed in motor vehicle crashes last year.

The advocates issued a joint statement last month praising six areas in which the Motor Vehicle Safety Title of the infrastructure bill would provide much needed protections to consumers, improve roadway safety, and reduce injuries.

• Advanced Driver Assistance Systems to Avoid Collisions

Effective and available technologies, such as automatic emergency braking (AEB), lane departure warning, and blind spot warning, have been shown to reduce and mitigate crashes. The Motor Vehicle Safety Title would mandate that these systems be included as standard in all new vehicles.

• New Car Assessment Program to Bolster Consumer Information

Over four decades ago, NHTSA established the New Car Assessment Program (NCAP) to provide crash test results and ratings. The program, which has since been emulated around the globe, has unfortunately not kept pace with new advanced technology and now seriously lags behind its international counterparts. The Motor Vehicle Safety Title would bring NCAP into the 21^st century, according to advocates.

Jack Gillis, CFA Executive Director and CEO, stated: “Today’s NCAP does little to differentiate the performance of vehicles because many now get the same rating. This severely limits consumers’ ability to separate the lemons from the peaches. The revisions to U.S. NCAP outlined in the Motor Vehicle Safety Title will reinvigorate competition and significantly improve vehicle safety.”

• Advanced Technology to Reduce Impaired Driving

Drunk driving remains a leading killer on America’s roads, with nearly one-third of all fatalities attributed to alcohol-impaired driving. Fortunately, new technology can help reduce this scourge by equipping vehicles with systems that can detect impairment and provide alerts or even shut down a vehicle if necessary. The Motor Vehicle Safety Title would require the NHTSA Administrator to work with automakers, suppliers, and other parties to develop advanced drunk driving prevention technologies, and pilot the systems in the federal vehicle fleet. Within two years of the legislation’s enactment, NHTSA would need to issue a final rule that requires advanced drunk driving prevention technology in all new vehicles.

• Unattended Occupant Detection and Alert Systems to Prevent Hot Car Deaths

In 2018 and 2019, over 100 children died as a result of being unknowingly left in a vehicle or accessing the vehicle independently and inadvertently trapping themselves inside. These tragic accidents, while typically associated with warmer months, are a year-round problem for loving parents and caregivers. The Motor Vehicle Safety Title would require systems that can detect and warn of the presence of an occupant. These systems are available, affordable, and would be required in all new vehicles if the package is enacted as law.

• itigating Against Risks of Keyless Ignition Technology

As keyless entry has become more common, two potentially deadly safety risks have emerged: carbon monoxide poisoning and vehicle rollaway. While the technology is convenient, it also makes it harder for people to notice that they have left their cars running, and without proper safeguards, this can have tragic consequences. The Motor Vehicle Safety Title package includes a provision to reduce these risks by mandating a simple, inexpensive automatic shutoff feature.

• Improving Limousine Safety

While limousine rides are often associated with happy memories, sub-par safety standards can also turn these rides into tragic accidents. The Motor Vehicle Safety Title would close the loopholes in the standards, increasing safety for limousine riders as well as drivers.

“As CFA focuses its attention on various auto safety issues, the good news is that the dramatic reduction in driving has resulted in fewer crashes and injuries. Nevertheless, as new technologies are being introduced at record rates, CFA continues to call on Congressional oversight to protect the safety, security and privacy of the driving public,” stated Gillis.

House Acts to Improve Credit Reporting Systems

 The House of Representatives voted late last month to pass the Protecting Your Credit Score Act of 2020 (H.R. 5332) aimed at increasing protection of consumer data, transparency of credit reporting, and accountability of the credit reporting agencies, furnishers, and companies that develop credit scoring models. The bipartisan bill, sponsored by Rep. Josh Gottheimer (D-NJ), is “an important step in making credit reports more accessible to consumers and fixing a broken system for credit reporting disputes,” said CFA Financial Services Outreach Manager Rachel Gittleman.

Congress has not passed significant credit reporting reform in 17 years. The Federal Trade Commission (FTC) found that 21% consumers have verified errors in their credit reports, while 13% had errors that affected their credit scores. The Consumer Financial Protection Bureau (CFPB) has received a record-setting volume of complaints since the start of the COVID-19 emergency, and credit reporting (along with debt collection) tops the complaint database for the most complained about product overall.

H.R. 5332 would create a single online platform to provide consumers with unlimited access to credit reports and scores, allow consumers to initiate disputes about reporting issues, and track and protect their credit data. It would also increase accountability for the three largest credit reporting agencies and would establish a CFPB ombudsman to increase supervision and enforcement.

“Especially during the current financial crisis and its aftermath, consumers need easy-to-use tools to better understand their credit history and initiate disputes,” Gittleman said. “We commend this bipartisan effort but urge Congress to go further to protect consumer credit during the COVID-19 emergency, including placing a moratorium on negative credit reporting.”

“We applaud the House of Representatives for their work to increase transparency and accountability in the credit reporting system,” said Rachel Weintraub, CFA Legislative Director and General Counsel. “Further, we urge the Senate to pass this important, bipartisan legislation to fix glaring issues in the credit reporting system. This modest legislation is long overdue and especially needed during the current financial crisis,” Weintraub concluded.

Groups Express Concern over Mortgage Forbearances being sold to GSEs

The Federal Housing Financing Administration (FHFA) adopted a new policy late last month regarding the treatment of mortgages that have closed but entered forbearance prior to being sold to the Government Sponsored Enterprises (GSEs) or insured by the Federal Housing Administration (FHA). CFA and 35 other advocacy groups expressed deep concern over this policy change in a letter to the Secretary of Housing and Urban Development (HUD) and the Director of FHFA.

“These new charges are another unjustified obstacle for consumers already facing enormous economic stress through no fault of their own,” said Barry Zigas, CFA Senior Fellow.

In their letter, the groups stated that “these changes will further reduce access to credit for borrowers of color and those living in communities hardest hit by the coronavirus, thereby having a deleterious pro-cyclical effect rather than playing the critical countercyclical role that these government-backed institutions played in the last crisis.” The policy change also has the potential to significantly affect both the cost and availability of financing of multifamily mortgage financing, they warned.

“Since there is no way to underwrite loans for the contingency of COVID-19 related unemployment, lenders will inevitably apply deep overlays across their book of business to avoid penalties that wipe out the profit on these loans and many more that never go into forbearance,” the groups wrote. “This is the equivalent of collective punishment on all borrowers, particularly first-time homebuyers with smaller down payments, less than pristine credit, or those employed in areas that have already withstood the majority of likely job loss.”

The groups also highlighted how this policy change will adversely affect communities of color at a time where the national conversation is shifting dramatically. They stated: “…this is no time to double down on already low homeownership rates in Black communities and other communities of color. Credit overlays will not only deter first-time homebuyers, but also prevent existing homeowners of color from refinancing and benefiting from historically low interest rates, further locking them out of the prospect of building wealth through homeownership.”

The groups concluded by urging FHA to rescind and revise its mortgage letter requiring a 20% indemnification requirement for validly underwritten loans that go into forbearance post-closing but before the loans can be insured. They further requested that FHFA rescind and revise its announced penalty of 500-700 basis points on loans similarly situated so that these loans are insured/purchased without the punitive pricing and indemnification requirements that are contributing to market-wide credit overlays.

At Least Five States see an Increase in OHV Injuries since Stay-at-Home Orders Issued

Consumer safety advocates are sounding the alarm after five states began experiencing increases in off-highway vehicle injuries since the COVID-19 stay-at-home orders were issued. Doctors in Colorado, Florida, Georgia, Louisiana, and Vermont have all reported a distressingly similar trend in OHV injuries.

“We are alarmed at reports of increased numbers of OHV emergency room visits in hospitals in five states. These increases are occurring earlier than usual due to COVID-19 school closures and stay-at home-orders and we hope that OHV incidents do not continue to increase as summer begins,” stated Rachel Weintraub, CFA Legislative Director and General Counsel.

In states documenting a recent uptick in injuries tied to stay-at-home orders, doctors are seeing significant jumps compared to previous years. For example, Dr. Marie Crandall, a professor of surgery at the University Of Florida College Of Medicine in Jacksonville stated, “We have seen a dramatic increase in the kids that come in with injuries from ATVs as compared to previous years… In a typical year, while children are still in school, there are up to three injuries a month from ATVs severe enough that children are taken to the hospital. This year, doctors have seen five to ten incidents a month and up to two or three deaths every month, mostly because of ATV traumatic brain injuries.”

OHVs encompass a large number of vehicle types, including: all-terrain vehicles (ATVs), recreational off-highway vehicles (ROVs), and utility task vehicles (UTVs). CFA, and its OHV Safety Coalition, have been compiling OHV fatality data since 2013. From 2013 through 2019, CFA has documented over 4,000 deaths. While these numbers are high, these findings are not yet complete and the number of deaths will likely increase as additional information becomes available.

CFA’s OHV fatality data also includes state-by-state breakdowns. From our data, we are able to identify that the states with the most fatalities include:

1. Pennsylvania (226);
2. Texas (217);
3. California (177);
4. West Virginia (173); and
5. Missouri (171)

A full breakdown of state-by-state fatalities can be seen in the heatmap below.

CFA urges consumers to take the following six critical steps in order to reduce OHV deaths and injuries:

• Never operate an OHV on a road;
• Never permit children younger than 16 years old to operate an adult-size OHV or any OHV that is too large or too powerful for them;
• Always wear a helmet and other protective gear when riding an OHV;
• Never allow more people on an OHV than it was designed to carry;
• Never ride when under the influence; and
• Take a hands-on safety course.

In addition to the six steps above, a CFA partner organization, Prevent Child Injury, has issued an important ATV safety toolkit available at https://www.preventchildinjury.org/toolkits/atv-safety aimed specifically at helping parents learn about the risks of children using ATVs.