"Whoever is generous to the poor lends to the Lord, and He will repay him for his good deed." - Proverbs 19:17
In addition to providing ministries of relief and development, Helping Hands also advocates with and sometimes on behalf of our clients. One of our longest-running areas of advocacy is in the regulation of the payday and auto title loan industry. Helping Hands was even featured in a documentary on this issue, which can be seen above.
Payday and Auto Title Loans
Commenting on CFPB Rules
The Consumer Financial Protection Bureau (CFPB) proposed a new rule in June concerning the federal regulation of payday and auto title lending businesses. The rule addresses an industry whose business model is based on trapping people (who typically have very few financial resources available to them) in a cycle of debt. The public has until October 7th to comment on this rule online. This means that industry lobbyists and representatives will be working very hard to weaken this rule so that they can continue business as usual, extracting billions of dollars from families who can least afford it.
Many advocates for reform, like Helping Hands, believe that this proposed rule is a good start. We also believe that loopholes exist in the CFPB’s rule, allowing lenders to avoid the spirit of the law, which is aimed at the borrower’s ability to repay the loan, not becoming trapped in debt. We have a historic opportunity to comment on this rule and explain why it should not only be supported, but why it should also be strengthened. Below is a sample comment that you and everyone in your network can submit online. Simply go to http://stoppaydaypredators.org/texasfairlending/ and enter your information and comment. Comments will be compiled and sent to the CFPB. Please know that once comments are submitted to the CFPB, they will be considered public record, and nothing will be edited on your behalf. Feel free to edit any information in the sample comment below. I support the CFPB’s proposed rule; however, I believe that the rule needs to be strengthened. The ultimate goal of the CFPB’s rule concerning payday ane auto title lending should be to prevent consumer harm by ensuring borrowers’ ability to repay loans. The proposed rule contains loopholes that give payday and auto title lenders the ability to manipulate the proposed regulation. By closing the rule’s existing loopholes, even stronger rules will be established to provide a more equitable environment for people who are in need of a short-term loan.
I believe that consideration of a borrower’s ability to repay a short-term loan should include monthly expenses such as rent and food, not just the ability to repay the payday or auto title loan. Without this consideration, borrowers will remain in a cycle of debt. Every borrower should have an ability-to-repay assessment, no exceptions. Furthermore,borrowers should have a maximum indebtedness of 90 days per year.
The work of the CFPB is critical to millions of Americans who live with limited financial security. I want to thank the CFPB and Director Cordray for their efforts, and I hope and expect to see stronger rules that will ensure fairer financial products for everyone. Please pass this along to family, friends, co-workers, and as many people who are willing to comment on this rule.
Texas Payday and Auto Title Lending Simulation
Access the download the Texas Payday and Auto Title Lending Simulation to be used with those in your network for public education purposes.
Helping Hands Ministry supports CFPB rules, advocates for even stronger protections
June 6, 2016
Last Thursday, June 2, the Consumer Financial Protection Bureau (CFPB) unveiled a proposed rule that would place increased consumer protections around predatory payday and auto title loan businesses. At the heart of the rule is the establishment of an ability-to-repay assessment of potential borrowers. Presently, payday and car title lenders are not required to assess the borrower’s ability to repay the loan while also fulfilling other financial obligations. As a result, many borrowers find themselves refinancing and/or “flipping” (taking out multiple loans in succession) these loans that often carry annual percentage rates of 500+%, according to Rucker Preston, Executive Director of Helping Hands Ministry of Belton. Preston also shared that while the foundational premise of the rule is on-target, the specifics miss the mark in several important ways. There are certain exemptions to the ability-to-repay requirement, for both short- and long-term loans; the protections against loan flipping are weak; and there is a loophole in the ability-to-repay requirement that would allow lenders to seize payments from repeat borrowers’ bank accounts based on amounts they have deducted from borrowers’ accounts in the past, whether or not such payments are truly affordable for borrowers.
Payday and auto title loans have devastating effects for low and middle-income Texans and, in turn, place significant strain on nonprofits and social service agencies such as Helping Hands Ministry. As an organization, Helping Hands Ministry became concerned with payday and auto title loans several years ago when it became evident that many clients who requested financial assistance for rent or utilities were indebted to payday or auto title lenders. Numerous families have shared their stories of loan entrapment with Helping Hands staff; recently, the Sanchez* family came to Helping Hands Ministry, requesting assistance with a loan payment.
Mr. Sanchez is a husband, father of 2, and disabled veteran who is unable to work and relies on disability benefits as his primary source of income. When the family came up short on rent, they took out an auto title loan in the amount of $2,500 on their only vehicle. After making rollover payments for 10 months, the Sanchez family had paid $3,500 in fees, yet still owed the entire $2,500 principal (payments at such businesses do not pay down the principal amount of the loan at all; repayment of the principal is expected in a lump sum). The family came to Helping Hands Ministry because they knew if they missed the payment, their car would be repossessed, leaving them without any transportation. This would mean missed medical appointments at the VA for Mr. Sanchez, inability for Mrs. Sanchez to get to her job, missed school for the children, and no access to a grocery store (the closest store was 4 miles away).
Helping Hands Ministry supports strong CFPB rules, not only on economic and social grounds, but also on the beliefs they hold as professing Christians. Scripture is clear in its exhortation to deal justly and generously with the poor, to avoid exacting interest, and to speak up for those who are oppressed. “As a faith-based organization that seeks to provide for our neighbors in need as Scripture commands, we see no option but to support a ruling that will deal justly with our neighbors who are vulnerable to the predatory practices of payday and auto title lenders,” Preston stated. “We are asking friends and neighbors to come alongside the CFPB,” added Director of Community Partnerships Kristen Bulgrien, “by showing support for the proposed rule and asking them to make it even stronger by requiring an ability-to-repay determination on every loan, no exceptions; limiting total indebtedness in all covered short-term loans to 90 days per year, consistent with the FDIC standard; closing the loophole in the ability-to-repay assessment that would allow lenders to automatically withdraw payments from borrowers’ bank accounts, whether they are affordable for the borrower or not; and ensuring that all loans that give lenders extraordinary leverage to extract repayment would be covered by the new rule.”
The CFPB rule is open to public comment online until October 7 2016, and a final determination will be made at that time, based on citizen feedback. Preston and Bulgrien urge Central Texans to comment and show the CFPB their support by visiting http://stoppaydaypredators.org/texasfairlending. There are over 3,400 separate payday and auto title lenders in the state of Texas. That’s more than all of the Whataburgers, Starbucks, and McDonald’s restaurants in the state combined.
Due to loopholes in Texas law, payday and auto title lenders can charge an APR of over 500% in fees.
Statistically, almost one-third of Texas residents seeking financial aid from establishments similar to Helping Hands are trapped in debt by predatory lending.