Los Angeles, California - Attorney General Kamala D. Harris today issued a letter urging the Consumer Financial Protection Bureau (CFPB) to adopt regulations that strengthen protections against harmful payday and small-dollar lending practices. The CFPB is proposing to create the first nationwide regulatory floor for the payday lending industry that can work in harmony with California’s laws and regulations to further protect vulnerable consumers from falling into vicious cycles of debt.
“Together with California’s existing lending laws, the Bureau’s proposals would bring needed protections to vulnerable California consumers who take out small-dollar loans, which too often are predatory and create a debt trap for fixed- and low-income borrowers. Californians who need short-term emergency access to cash are getting stuck in a destructive and unaffordable cycle of repeat high-interest loans that they cannot afford to repay,” Attorney General Harris stated in the letter to the CFPB.
In 2014, 1.8 million California consumers took out 12.4 million payday loans, borrowing $3.38 billion. There are over 2,000 licensed payday loan locations in California (substantially more than the number of McDonald’s restaurants). Moreover, many locations are in counties with high poverty rates and low education levels, effectively targeting communities most in need of emergency access to cash and most at risk of becoming trapped in crippling cycles of debt.
In the letter, Attorney General Harris strongly supports the CFPB’s proposals to curb the abuse stemming from traditional, high-cost payday loans and collections and urges the CFPB to consider additional measures that would provide a meaningful alternative for Californians who need small-dollar loans.
Attorney General Kamala D. Harris’ Comments on the CFPB’s Proposed Actions
- Require a meaningful “ability to repay” standard: Attorney General Harris strongly supports the CFPB’s proposed “ability to repay” standard. This would require lenders to make good-faith, reasonable determinations that a consumer has the ability to repay the loan, after satisfying financial obligations and living expenses. Requiring an ability to repay analysis for payday and small-dollar loans would help ensure consumers are provided with loans they can afford without needing to re-borrow or default.
- 60-day “cooling off” period: Attorney General Harris supports the proposed 60-day “cooling off” period between short-term loans, which presumes an inability to repay subsequent loans made within 60 days of another loan, and a mandatory 60-day “cooling off” period after consumers take out three short-term loans in a row. This would help protect consumers from falling into debt cycles.
- Implement an “off-ramp” to taper of indebtedness: If the CFPB decides to allow an alternative to an “ability to repay” standard, Attorney General Harris would support increasing screening requirements, structural protections, and potentially phasing out alternative loans that do not require an “ability to pay” standard over time. Attorney General Harris would support the CFPB’s “off-ramp” proposal, which would allow consumers to repay certain short-term loans over additional installments without incurring additional costs, so they may better avoid taking out additional loans. Lenders should also be required to notify consumers of their right to take the off-ramp, and should not discourage borrowers from using the off-ramp.
- Curbing harmful payment collection practices: Attorney General Harris strongly supports proposals requiring notification before lenders attempt to collect payment from consumers’ accounts. Lenders should also be limited to two attempts to collect payment unless they obtain new authorization. This can help protect consumers from excessive account fees following unsuccessful withdrawal attempts.
- Protect consumer privacy: Attorney General Harris encourages the CFPB to require strict limitations on information entered into databases. Use of this data should be restricted to confirming eligibility for new loans, and access should only be granted to the necessary parties. Borrowers should receive notice that their data will be collected and stored in the database.
- Permit states to adopt more restrictive laws and regulations: The CFPB is strongly encouraged to take the necessary steps to clarify that it does not intend to undermine or preempt stricter state and local laws governing payday and small-dollar loans. Following assessment of need, further regulations may be deemed necessary for certain states and localities. The ability to implement additional restrictions should remain available.