It seems obvious that lenders should not make loans to people who cannot afford to repay the loan. But that commonsense principle of consumer lending is being turned on its head by predatory payday lenders. To these unscrupulous financial actors peddling triple-digit interest rate loans, borrowers who struggle to repay are the real money makers. And new Consumer Financial Protection Bureau (CFPB) Director Kathy Kraninger just proposed greenlighting payday lenders’ money grab.
Once consumers’ trusted watchdog and a top ally in Washington, D.C., the CFPB designed a rule to limit debt trap payday loans. The rule, issued in 2017 and slated to take effect in 2019, would prohibit payday lenders from making more than six loans a year to a borrower without assessing the borrower’s ability to repay the loans, similar to the way credit card companies do. But under the leadership of Kraninger, the bureau has proposed to largely repeal the common-sense rule imposing limits on payday lenders that entrap borrowers in unaffordable loans.
According to a report from the Center for Responsible Lending, Alaskans pay $6 million each year in fees and interest on payday loans, with annual percentage rates as high as 435 percent. Instead of being pumped back into our local economy, each year $6 million, taken from the most vulnerable low-income Alaskans, goes to outside corporations like Money Mart, a payday lender issuing loans in Anchorage while operating out of Victoria, Canada.
Over 80 percent of payday loans are either rolled over into a new loan to cover the previous one or are renewed within 14 days of repayment. Half of all payday loans are part of a sequence of 10 loans or more. These second, third and fourth loans come with new fees and push borrowers into a debt trap. It’s no wonder why predatory payday lenders prefer borrowers who will struggle to repay their loans. It is this long debt trap that the original CFPB rule is designed to prevent.
The payday lending industry couldn’t be happier about efforts to weaken the rule. But the numbers don’t lie. Predatory loans are hurting Alaskans and we must not allow Wall Street and foreign bank-backed payday lenders to get the last word.
The public has until mid-May to tell the CFPB what we think. Representing the best interest of all Alaskans, with our financial well-being top of mind, U.S. Sens. Lisa Murkowski and Dan Sullivan, and U.S. Rep. Don Young must join Alaskans in calling on Kraninger to give teeth to the final payday rule and include the ability-to-repay requirement. The CFPB must remain true to its consumer protection mission: protect Alaskans from predatory lenders, don’t protect a predatory industry’s huge profit margins.
• James J. Davis, Jr. lives in Anchorage and is a founding partner of Northern Justice Project, where he represents low-income Alaskans and Alaska’s tribes. My Turns and Letters to the Editor represent the view of the author, not the view of the Juneau Empire.