Congress is trying to strip away Americans’ protections from predatory lending

Last month, Governor Fallin made the right choice when she vetoed HB 1913 – a bill that would have expanded predatory lending in Oklahoma. In her veto message, Fallin pointed out that Oklahomans frequently take out high-interest loans at a high cost to them and their families. Gov. Fallin wisely chose not to add another predatory product to the market that could trap Oklahoma families in even more debt.

Predatory lending is not just an Oklahoma problem. Only 15 states and the District of Columbia prohibit payday lending with interest rate caps.  Interest rates in the remaining states range from an average of 154 percent in Oregon to an astronomical 677 percent in Ohio. The average rate in Oklahoma on a payday loan is nearly 400 percent. Payday borrowers often end up paying more in interest than what they get through the loan, and repeat borrowing is common.  Payday loans, auto title loans, and small installment loans are a debt trap for working families in America, and most states have not taken action to protect them.

That’s why the Consumer Financial Protection Bureau (established in 2011) was tasked with protecting borrowers from predatory or unfair lending practices. Last summer, the CFPB proposed new rules for payday and installment loans that, if enacted, would require lenders to verify that the borrower can afford to repay a loan before lending.  But hidden deep in the so-called Financial CHOICE Act (H.R. 10), which could come up for a vote today in the U.S. House, is language that would take away the CFPB’s authority to regulate consumer lending – meaning that, in many states, no one will be protecting consumers from predatory lending practices.

Predatory lending is especially harmful at a time when wage stagnation and cuts to the social safety net over the last few decades mean that low-wage workers are struggling to make ends meet each month. The minimum wage has not kept pace with inflation and the rising cost of living – the federal minimum of $7.25 an hour has lost about 9.6 percent of its purchasing power due to inflation alone. And wages in general are not rising at the same rate as productivity – wages have actually stagnated in recent decades, with only small upward improvements. The safety net programs that people once would turn to are also losing value. Since Temporary Assistance for Needy Families (TANF) was converted to a block grant in 1996, the program has lost about one-third of its value.

Now when families in difficult situations need help, payday and other high-interest loan products can seem very attractive because they are so easy to get. In states where it’s allowed, many neighborhoods have a loan shop on almost every corner – especially in low-income zip codes or near military bases.

But these loans often result in a debt trap – borrowers cannot pay off the original loan, and so they take out a second loan to pay it off, then a third loan, and then another.  The loans become a permanent financial fixture in the lives of many low-income families and significantly hinder their ability to improve their financial situation. If most states are not regulating these predatory practices, and the CHOICE Act makes it impossible for the CFPB to regulate them, then who will protect families?

Banning common-sense regulation of payday loans is the wrong choice for working families – it is a step backward that would make it even harder to build financial security. You can find contact information here to tell your Representative to reject H.R. 10 and instead work toward reforms that would improve the financial well-being of all Americans.

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Courtney Cullison worked for OK Policy from 2017 to 2020 as a policy analyst focused on issues of economic opportunity and financial security. Before coming to OK Policy, Courtney worked in higher education, holding faculty positions at the University of Texas at Tyler and at Connors State College in eastern Oklahoma. A native Oklahoman, she received an Honors B.A. in Political Science from Oklahoma State University, and an M.A. and Ph.D. with emphasis in congressional politics and public policy from the University of Oklahoma. While at OU, Courtney was a fellow at the Carl Albert Congressional Research and Studies Center. As a professor she taught classes in American politics, public policy, and research methods and conducted original research with a focus on the relationship between representatives and the constituents they serve.

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