Subject: Docket No. CFPB-2016-0025
Dear Director Cordray,
Thank you for working to improve the lives of borrowers around the country by addressing the harms in the payday loan market. I appreciate the opportunity to comment on this rule and encourage the CFPB to make sure the loans are safe and affordable in order to protect borrowers.
Payday loans have harmed borrowers for the past 25 years. The loans have rates averaging 400 percent and Americans spend almost $9 billion on payday loan fees annually. Repaying a loan in just two weeks is difficult for people struggling to make ends meet. The CFPB's proposal will allow fewer two-week payday loans and encourage more installment loans that are repaid over time, which is good. But in our state today, we already have high-cost installment loans, with APRs that can be just as high as payday loan APRs, and with payments that are still unaffordable. The rule would not solve these problems and might encourage more lenders to offer dangerous longer-term loans. A payday installment loan with 400 percent APR is never safe, even if the lender checks a borrower’s credit report and projects the borrower’s expenses.
Consumers need access to lower-cost loans and, if done right, this rule can help make that happen. Small loans should function like other types of credit such as mortgages and student loans, where the balance declines with every payment and borrowers are able to repay their loans in affordable installments over time. Payments should be limited to an affordable percentage of a borrower’s paycheck to ensure they can repay their loan while meeting other financial obligations.
The best way to ensure that safer and affordable small loans are available would be to encourage banks and credit unions to compete at lower prices. This would save payday loan borrowers billions of dollars per year, but right now, the proposal does not offer a pathway for these better products.
I urge the CFPB to add product safety standards to its proposal, including limiting installment payments to an affordable share of a borrower’s paycheck, such as 5 percent; requiring that lenders give borrowers between 46 days and six months to repay their loans, and prohibiting origination fees. These improvements would go a long way in tackling the problems with high-cost installment loans. Simple and clear limits would better protect consumers, enable access to lower-cost credit, and save millions of borrowers billions of dollars.
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