Biden administration expected to strengthen protections against predatory lending
Millions of people in the United States do not have enough money to cover their basic needs and may be forced to turn to payday lenders – short-term, low-cost lenders who charge premium rates. interest may exceed 390% – to survive. Borrowers often have to take out another loan to cover the first one because of the exorbitant interest rates and fees.
It’s the “debt trap” at the heart of the business model that generates billions of dollars every year for predatory lenders at the expense of some of the country’s most vulnerable people. This ruinous cycle of debt poses serious human rights risks as it forces people to give up basic needs such as food or delay paying rent and utilities.
The federal government took emergency measures during the pandemic that likely helped prevent many people in the United States from having to resort to high-cost loans. But as these measures expire, predatory lenders will take advantage of those in dire economic circumstances.
In 2017, the Consumer Financial Protection Bureau (CFPB) published a “repayment capacity” rule, which required some lenders to determine whether a borrower could actually repay a loan before being allowed to lend. While this rule would not cover all potentially predatory loans, it would still help protect many consumers from the debt trap.
Former President Donald Trump’s administration opposed this protection, and the CFPB suspended the rule amid fierce industry reluctance. He eventually repealed the rule in 2020. Under President Joe Biden’s administration, the CFPB has yet to prioritize restoring this essential protection, although Congress has overturned other nefarious policies of the era. Trump on payday lenders.
The CFPB should immediately restore and strengthen repayment capacity, offering guarantees against exorbitant lending practices that are essential to protect human rights, especially those of black, Latin and low-income communities that are affected. disproportionately.
Restoring the CFPB’s repayment capacity rule is not enough to truly eliminate predatory lending. Additional regulations capping interest rates; improve financial literacy; and enabling people living in poverty to access fair and non-exploitable credit are also necessary. However, people will remain vulnerable to predatory practices until they have the income to meet their basic needs. Without structural reforms to tackle persistently high poverty and stagnant wages, predatory lenders could find new ways to exploit vulnerable people.