Subject: Docket No. CFPB-2016-0025
Dear Director Cordray,
Thank you for working to improve the lives of borrowers around the country and in Ohio by addressing harms in the payday and auto title 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. In Ohio, the average APR is 591 percent and 1 in 10 adults in the state has used a loan. Repaying the loans 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 Ohio's market has already shifted to harmful payday installment loans with 400 and 500 percent APRs. The lender has very strong leverage over the borrower's checking account or car title, and there are no limits on how long this leverage can last. Such credit is inherently unsafe 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, the CFPB's 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. Loan payments should be limited to an affordable percentage of a borrower's paycheck–no more than 5 percent–to ensure they can repay their loan while meeting other financial obligations.
The CFPB should encourage safer and affordable small loans from banks and credit unions that are capable of serving households at lower prices. This would save 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; requiring that lenders give borrowers between 46 days and six months to repay their loans; and prohibiting large origination fees that encourage lenders to refinance borrowers frequently. These improvements would go a long way in tackling the problems with high-cost payday and auto title installment loans in Ohio's market today. 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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