Washington, D.C. – CFA strongly opposes the Congressional Review Act Resolution that was introduced today in an attempt to quickly invalidate new consumer protections that were years in the making and the result of significant study.
The Consumer Bureau’s recently finalized payday rule’s core requirement requires lenders to determine if borrowers are able to repay short term payday and auto title loans, and longer-term loans with balloon payments before they lend the money.
“This sensible safeguard will help save consumers from getting trapped in a cycle of triple digit interest rate loans rolled over and over again,” said Michael Best, Director of Advocacy Outreach at Consumer Federation of America. “We oppose this Congressional effort to gut this important rule.”
The Debt Trap Harms Consumers
Payday loans, which often carry an annual interest rate of over 300%, are unaffordable and ultimately trap consumers in a cycle of debt where consumers roll over loans because they are unable to repay them. Lenders make money even if the loan is never successfully paid back because of high interest rates and fees—the debt trap. Financially vulnerable communities and communities of color are particularly harmed. Almost 70% of borrowers take out a second loan within a month, and one in five borrowers take out 10 loans or more consecutively. These borrowers taking out more than 10 loans a year are stuck in the debt trap and generated 75% of the payday loan fees in the CFPB’s research.
Congressional Review Act
The Congressional Review Act (CRA) allows Congress to, relatively quickly, disapprove a pending rule within a certain timeframe and without filibuster. The repeal also has the impact of barring an agency from issuing another rule in substantially the same form as the disapproved rule.
The Final Rule was years in the making and weighs in at 1690 pages of carefully considered text. It balances the need to protect consumers from the debt trap with addressing concerns raised by institutions like credit unions by excluding less risky products like payday-alternative loans from the rule.
“This rule is widely supported by the public. Over the last two days state advocates from across the country held at least 50 meetings with their members of Congress to affirm that their constituents need this common sense consumer protection,” said Best.
Contact: Michael Best, (202) 939-1009