Perspective: The government move that threatens to keep Americans trapped in debt
A customer leaves a payday loan store on Frederick Road in Gaithersburg. By Anne Fleming Anne Fleming is an associate professor of law at Georgetown University and the author of"City of Debtors: A Century of Fringe Finance," forthcoming in January 2018. May 2 at 6:00 AM In November 2017, the Consumer Financial Protection Bureau issued a rule requiring payday lenders to assess a borrower’s ability to repay before making a loan.
But over time, as market conditions changed, the Uniform Law fell out of step with the needs of many lenders and borrowers. Its loan limits and maximum rates of charge did not reflect the commercial realities of post-World War II America. Many states failed to update their laws to keep pace. This made it harder for lenders to make these small sum loans profitably.
This is a throwback to the situation in the early 20th century. Then, as now, state-by-state variations created opportunities for lenders to evade restrictive state laws by lending across state lines. Federal law already requires credit card issuers and mortgage lenders to assess a borrower’s ability to repay. The proposed CFPB rule extends this requirement to lenders offering high-cost loans that must be repaid in a short time period or that require a final “balloon” payment, meaning a lump-sum payment that is more than twice the size of the other required installment payments.
Second, the CFPB’s 2017 rule would create national minimum standards for payday loans, thereby shifting some of the burden of regulating them from the states to the federal government. It would provide a floor applicable everywhere — and therefore harder to evade — without setting a ceiling on state-level consumer protections.
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