The Star-Ledger

Trump Administration Would Allow Predatory Lenders To Trap New Jerseyans In Ruinous Debt

The Star-Ledger — August 25, 2020

By Beverly Brown Ruggia
Star-Ledger Guest Columnist

Imagine taking a $500 loan to help pay your bills as you struggle with the pandemic, only to eventually owe $2,000 in loan repayments. Many New Jerseyans could be trapped in this type of ruinous debt if the Trump administration has its way.

A new rule proposed by the federal Office of the Comptroller of the Currency (OCC) on July 20 would allow predatory lenders to bypass longstanding New Jersey protections. It would allow them to prey on our most vulnerable residents — our working families, our small businesses, our communities of color — as they struggle to pay for necessities while the COVID-19 pandemic continues to devastate our economy.

Predatory lenders promise a "short-term" fix but in fact, they make the most of their money by trapping borrowers in a vicious debt cycle, forcing them to borrow more and more to pay for their initial loans. Across the country, these lenders charge an average annual interest rate of 400% for short-term loans and 100% or more on longer-term installment loans.

New Jersey currently protects state residents from these lenders by enforcing a 30% interest rate cap on both short-term payday loans and longer-term installment loans. But the Trump administration's proposed rule would allow predatory lenders to pay an out-of-state bank to act as the "true lender" on behalf of the predatory lender. These banks are exempt from New Jersey's rate caps and would enable predatory lenders to operate freely in our state, charging whatever interest rates they want.

This "rent-a-bank" rule would be implemented at the worst possible time for our economy and our state residents. Hundreds of thousands of New Jerseyans are unable to make rent, while many struggle with expenses such as food and healthcare. Trapping more of us in a ruinous debt cycle will exacerbate our state's eviction crisis, cause more bankruptcies, shutter more small businesses, and force many families to turn over their hard-earned wages to a predatory payday lender. It will be particularly devastating for low-income families and communities of color, who are suffering the worst during the COVID-19 pandemic.

It should come as no surprise that the Trump administration's proposed rule would allow unscrupulous businesses to bypass state regulations. Just last month, the federal Consumer Financial Protection Bureau gutted an ability-to-repay requirement for payday lenders meant to stop them from trapping their borrowers in long-term unaffordable debt. To prevent this rule from being implemented New Jersey consumers will need to stand up for themselves and quickly.

State residents can send a comment to the OCC before the end of the public comment period on the rule by Sept. 3, asking them to respect the right of states to cap interest rates and to strengthen, rather than weaken, consumer protections.

We also need our elected lawmakers to step up by throwing their support behind federal legislation that would cap interest rates nationwide. This means adopting H.R. 5050, the Veterans and Consumer Fair Credit Act, which expands the 36% cap afforded to active-duty military and veterans to all Americans. The Act would also allow New Jersey to maintain our own lower interest rate cap of 30%. If passed into law, the legislation would stop the "rent-a-bank partnerships" that are formed for the purpose of evading state caps and would protect low-income families nationwide from predatory lending.

The global pandemic has already plunged New Jersey into an economic crisis. Let's not make it worse for New Jerseyans by allowing the Trump administration to implement this proposed rule. We can't allow predatory lenders to bypass New Jersey protections.

Beverly Brown Ruggia is the financial justice organizer of New Jersey Citizen Action, a statewide advocacy and social service organization.

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