AUSTIN (Nexstar) — The Consumer Financial Protection Bureau (CFPB) is looking to roll back a rule that would require payday and auto title lenders check a borrower’s ability to repay the loan.
“To not look at the ability of the borrower to repay gives some concern,” Ann Baddour, director of the Fair Financial Services Project at Texas Appleseed, said.
The Bureau worries the rule, scheduled to go into effect this August, would “reduce access to credit and competition in states that have determined that it is in their residents’ interests to be able to use such products, subject to state-law limitations,” it stated in a release on the agency’s website.
Baddour said it could lead to negative impacts on Texans who borrow and said the state doesn’t offer much protection to borrowers either.
“We have some of the highest rates in the country,” she said. “Some of these loans average more than 500 percent APR. To put that into some context, a $100 loan will cost you $500 or more to pay back.”
“Right now, statewide, we have some of the most lax regulations in the country,” she continued.
“There’s no cap on the amount that can be charged on these loans, which is why we see loans at 500 percent APR and higher and there’s no limitation on the amount of the loan based on the borrower’s income or any affordability standards, no limitations on the numbers of times these loans can be refinanced and so the result is, we see so many families get trapped in this cycle of debt.”
According to the Texas Fair Lending Alliance, a coalition comprised of more than 60 organizations and individuals, from 2012 to 2017, Texans paid $9.2 billion in fees alone. During that same time period, more than 200,000 families lost a car to an auto title loan. More than 40 Texas cities have set local uniform ordinances, where payday loans, including all charges, are limited to 20 percent of the borrower’s gross monthly income. Auto title loans, including all charges, are limited to the lesser of three percent of the borrower’s gross annual income or 70 percent of the vehicle value. Every repayment must also help reduce the loan principal by 25 percent.
“Having basic fair standards in the market lifts up the market then creates better options,” Baddour said.
Eighteen states and the District of Columbia ban high-cost payday lending, according to the Consumer Federation of America. Several bills aimed at promoting fair market standards have been filed for consideration this legislative session, including one that would put the current city ordinances into state law.
The public has a chance to send in comments to the Consumer Financial Protection Bureau for 90 days over this proposed rollback.