A majority of Democratic senators are formally urging the nation’s consumer watchdog to issue “the strongest possible rules” reining in payday and other short-term lenders.
Thirty-two of 46 members of the Senate Democratic caucus signed a letter to Richard Cordray, director of the Consumer Financial Protection Bureau, pressing him and the agency to make the most of its “critical opportunity to protect consumers by issuing strong rules” governing small-dollar, short-term loans.
“Predatory lenders should not be able to continue unfair, deceptive, and abusive acts or practices that are designed to trap borrowers in a cycle of debt,” the senators wrote in the letter, which was organized by Sens. Jeff Merkley of Oregon, Richard Durbin of Illinois and Chris Coons of Delaware.
The CFPB is currently drafting rules that would cover payday and other short-term lenders. The agency in March released a blueprint outlining requirements it’s considering enacting, including a potential requirement that lenders determine whether a borrower could repay the entire amount of the loan when it’s due. Alternately, the agency said a lender could issue loans meeting certain restrictions such as caps on the number of short-term loans a customer can take out in a certain period of time.
The senators, in their letter, said they want the CFPB to focus their rules “on meaningful measures to ensure a consumer’s ability to repay.” Mr. Merkley told reporters in a phone briefing that would help end the debt cycle in which borrowers must keep taking out additional short-term loans to pay back existing loans as they come due. Research by the CFPB showed that four out of five payday loans are rolled over or renewed within two weeks.
The agency expects to issue a draft set of rules later this year, at which point it would be open to comment from the public, a spokesman said.
Payday loans typically consist of a few hundred dollars lent to borrowers who have until their next paycheck to pay it back. Other types of short-term loans include car-title loans, which involves a consumer borrowing against the value of their car and turn the title over to the lender as collateral.