Payday loans are marketed as emergency small dollar loans. But with annual interest rates that average 400%, these loans are dangerous debt traps and have a devastating effect on low-income communities, and disproportionately, people of color.
Payday lending is illegal in New Jersey, however payday lenders prey on New Jersey consumers online or serving in the armed services out of state. NJCA is campaigning hard for a strong payday lending regulation from the Consumer Financial Bureau (CFPB) to protect consumers in New Jersey from predatory payday lenders and their debt trap loans.
What New Jersey Needs from the CFPB Payday Lending Rule to #StopTheDebtTrap!
On June 2, 2016, the CFPB released proposed regulations for payday lending. During the public comment period, which ended on Oct 7th, 2016, NJCA gathered hundreds of comments from New Jersey consumers urging the CFPB to issue a strong rule that in no way undermines New Jersey’s clear ban on payday lending, and that will also enhance New Jersey’s protections against abusive payday lending practices. Indeed, a strong rule will benefit people everywhere. A strong payday rule should, at a minimum:
- Require a meaningful “ability to repay” standard based on income and expenses without exceptions or safe harbors. A weak rule, particularly one that includes a safe harbor, would give payday lenders unwarranted ammunition to knock down New Jersey’s existing protections, as they have been trying to do for many years.
- Affirm state interest rate caps and avoid sanctioning high-cost loans. The CFPB rule should affirm that state interest rate caps are a simple and effective way to help ensure ability-to-repay, and it should avoid lending legitimacy to covered loans by suggesting that they are safe or responsible products.
- Bolster the enforceability of existing state consumer protections, such as New Jersey’s usury law. The Bureau should provide that violation of state usury or other laws is an unfair, deceptive and abusive act and practice (UDAAP). The CFPB rule should also provide that payday loans are subject to the law of the state where the borrower resides. And it should emphasize that those who facilitate illegal loans through payment processing, lead generating, and advertising are engaging in unfair, deceptive, and abusive practices.
- Guard against extended periods in unaffordable loans with respect to longer-term loans. The CFPB rule should require more stringent underwriting for longer-term loans, discourage loans where payments do not make significant progress toward principal, and address serial refinancing.
- Prohibit abusive bank account access by payday lenders. The CFPB rule should, for example, require banks to permit account holders to close their accounts at any time for any reason, and prohibit banks from charging overdraft fees once the account holder has requested that the account be closed.
- Include enforceable protections against abuses by lead generators and other third-party marketing affiliates that sell people’s sensitive personal and financial information to payday lenders. The sale of this information exposes people already in dire financial straits to risks of fraud and other exploitative business practices.
New Jersey has shown that a strong, enforceable prohibition against payday lending constitutes sound public policy and clearly benefits the public interest. The vast majority of financially-struggling New Jersey residents have found ways other than abusive, unfair, and predatory payday loans to address their financial needs. Payday lending would, as it has elsewhere where permitted, make these residents worse off, not better.
Regardless of the final payday and auto title rule, expected to be issued by the CFPB in 2017, NJCA will continue to fight all forms of predatory lending in New Jersey. To review NJCA’s full Consumer Finance Policy Agenda click HERE!