Letter to Richard Cordray, Director of the Consumer Financial Protection Bureau - Consumer Protection On Payday Loans

Letter

Dear Director Cordray:

I am writing in response to the Consumer Financial Protection Bureau's (CFPB) proposed rules from March 26th covering payday loans, vehicle title loans, and other high-cost loan products. As you continue to seek input during the rulemaking process, I encourage you to consider the similar work done by Washington state to combat harmful short-term and long-term credit products. Through these actions, Washington has shown that strong, enforceable consumer protection efforts not only constitute sound public policy but clearly benefit the public interest.

A convincing body of research, including some conducted by your agency, has shown that irresponsible payday lending can create debt cycles that have deep and long-lasting impacts on borrowers. Too frequently marketed toward the financially vulnerable, payday loans often begin as short-term, emergency solutions to unexpected financial hardships but turn into crippling, self-perpetuating debt traps. Borrowers who cannot repay often end up rolling over loans indefinitely, paying more fees to delay the due date, or taking out a new loan to replace the old one.

For many years, this type of payday lending saturated Washington state. To address the problem, the Washington State Legislature enacted reforms in 2010 that set forth a dollar limit on payday loans and put in place a hard cap on the number of loans a borrower could obtain in any twelve-month period. Since the time these rules were implemented, Washington state has seen a steady decline in both the cost and number of payday loans. These reforms have saved borrowers an estimated $500 million each year in fees and interest payments.

Payday lending regulation must ensure that loans are affordable in light of a borrower's income and expenses, and I am encouraged to see that the CFPB's proposed rules include provisions similar to those in Washington state. Through debt trap prevention measures and the restriction of harmful debt payment collection practices, the proposed rules are a positive step toward ensuring that Americans have access to responsible short-term credit while protecting them from predatory practices. As you seek comment from industry and other stakeholders, I urge you to maintain the strong consumer protections outlined in your proposed rule, and at a minimum I hope to see a final rule that requires an ability-to-pay provision in the underwriting of loans.

Additionally, I encourage you to look for ways to increase protection for our service men and women who are often targeted by predatory lending. Recently, I joined a group of 40 Senate colleagues in supporting the Department of Defense's plan to update the Military Lending Act and close existing loopholes in order to better protect soldiers and their families from abusive financial practices. The letter expressed strong support for a proposed new rule -- much like CFPB's - that sought to prevent lenders from charging excessive fees and taking advantage of military families. I know CFPB was very helpful throughout DoD's rulemaking process, and I want to thank you and the Bureau for the work you did to help DoD develop the new Military Lending Act regulations.

I hope you will continue to strengthen consumer protection and support responsible payday lending practices during the rule's comment period and I look forward to seeing increased consumer protection in place soon.Thank you for your consideration.

Sincerely,

Patty Murray

United States Senator

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