Washington, D.C., June 14, 2016—The Ecumenical Poverty Initiative (EPI) has applauded the Consumer Financial Protection Bureau’s (CFPB) release of a rule that would govern payday lending and curtail predatory practices that have resulted in a vicious cycle of debt for low-income borrowers. In a briefing for Senate staffers yesterday about the proposed rule, EPI Director Rev. Sekinah Hamlin emphasized the need for even stronger regulations to protect vulnerable consumers.
“As proposed, the rule is not strong enough to end the debt trap,” said Rev. Hamlin. “We are calling for a tougher CFPB rule that will close loopholes, require that consumers have the ability to repay loans, and hold predatory payday lenders to a standard that reflects fair and just lending practices.”
Rev. Hamlin also spoke during the comment period at the CFPB’s hearing in Kansas City, Mo., earlier this month calling for a strong rule that would help to ensure the financial well-being of low-income families. “We are here to plead the cause of families who are striving to make ends meet,” she said.
Vulnerable families are often most hurt by payday loans with exorbitant interest rates and short repayment periods. These loans have resulted in borrowers spiraling into a cycle of debt by having to take out a new loan to pay off the previous one. Payments are often withdrawn directly from the borrower’s checking account and have resulted in overdraft fees, closed bank accounts, more debt, loss of property and, in some instances, the breakup of families.
“Instead of payday loans with high interest rates, communities need access to banking services and good lending products in their communities,” said Rev. Hamlin. “There has to be reinvestment in low-income neighborhoods in such a way that there are no ‘red lines’ being drawn to keep poor people in impoverished conditions.”
EPI has been actively involved in the push for an end to predatory payday lending practices, working in tandem with a number of coalitions that have called for a strong CFPB rule. During the comment period, which is open until Sept. 14, 2016, EPI will be working with denominational partners, state and regional ecumenical bodies as well as other faith and community groups, to urge an even stronger final rule from the CFPB—one that includes ability-to-repay requirements to every loan; increases protections against loan flipping; and, covers any loan that enables lenders to coerce repayment from borrowers.
In addition, EPI is calling for all communities to have access to financially viable lending products. There are communities that do not have viable, healthy loan products accessible to them. Banks and institutions that offer better financial products often do not lend to people in low-income communities.
“If someone needs a glass of water, you don’t give them poisonous water,” remarked Rev. Hamlin. “But, payday borrowers are given poisonous financial products in a moment of crisis that leave them in a debt trap, which sometimes takes them years to climb out of. Families deserve much better than this! Families deserve to have lending options that creates opportunities not oppression,” she said.
EPI partners and other faith-based organizations have responded to predatory payday lending and the lack of financial services in low-income and minority communities by establishing their own credit unions and offering small-dollar loans at reasonable interest rates. Wesley United Methodist Church in Richmond is an example of a church that helps members secure loans at manageable rates within a reasonable time frame. Friendship West and Wilshire Baptist churches in Dallas also collaborated to open their own credit union, running many payday lending companies out of business that had set up shop in low-income neighborhoods. However, these efforts cannot replace a strong CFPB rule that will set a standard for small-dollar loans and end predatory payday lending practices.
Further driving EPI and other faith groups to push for a strong CFPB rule is the House Republican Poverty Task Force plan, “A Better Way: Our Vision for a Confident America,” which was released last week. While the plan emphasizes the great need for banking services for low-income families, it does not take into account the predatory practices of payday lenders who have exploited millions of people with no place to turn when financial emergencies and unexpected expenses arise. The plan calls for less regulation of these unjust banking services and financial products that have been detrimental to low-income individuals and families.
According to Rev. Hamlin, “Without regulation, predatory payday lenders will continue to wreak havoc on those who are most vulnerable. We must have a strong CFPB rule as well as other legislation to stop these debt traps from succeeding in taking advantage of vulnerable people and propelling them into more dire financial situations.”
The Ecumenical Poverty Initiative, formerly the National Council of Churches USA Poverty Initiative, works to empower and mobilize the faith community to speak and act to end the scandal of poverty in the United States.