JSRI PRESS RELEASE: JSRI Response to CFPB Initial Ruling

 

FOR IMMEDIATE RELEASE 

Encouraging Initial Rule Needs Strengthening, says Jesuit Social Research Institute

New Orleans, LA- April 14, 2015: The Jesuit Social Research Institute welcomes the Consumer Financial Protection Bureau’s (CFPB) encouraging initial rule to curtail payday lending but we are concerned that the proposal leaves too many loopholes for continued abuses.  

Significant additional rules are necessary to break a business model designed to catch families in a cycle of debt.  

“When a family has nothing to eat because they have to repay loan sharks,” exclaimed Pope Francis on January 29, 2014, “that is not Christian, It is inhuman!” 

As Bishop Stephen E. Blaire wrote to CFPB Director Cordray (November 13, 2013): 

The Catechism of the Catholic Church equates exploiting economic hardship with theft:  “Even if it does not contradict provisions of civil law, any form of unjustly taking and keeping the property of others is against the seventh commandment: thus, deliberate retention of goods lent or objects lost; business fraud; paying unjust wages; forcing up prices by taking advantage of ignorance or hardship of another (#2409).”

Bishop Blaire explains that payday lending meets these criteria because it preys on the financial hardship of the poor, exploits their lack of understanding, and increases economic insecurity.  

Payday lending violates the most cherished values of our faith and democracy: human dignity and freedom.

Payday loans led to the net loss of 671 jobs and drained at least $46 million from

Louisiana in 2011 according to a study by the Insight Center for Community Development.  A typical Louisiana borrower will need to take out 9 loans each year to pay off their original debt, resulting in $270 in fees for a one-time $100 loan.

We welcome the Consumer Financial Protection Bureau’s proposed rule that calls upon payday lenders to practice what any responsible lender does: consider the borrower’s ability to repay the loan while meeting other expenses without needing to re-borrow.  This is an important first-step to stop predatory lending practices that prey upon financially insecure families and their inability to repay loans that trap them in a cycle of debt.  

However, this rule needs to be strengthened and close loopholes that allow this perverse business model to persist.  

We need federal regulations that require lenders to determine the ability of borrowers to repay a loan in consideration of both income and expenses and obligations.  We also need to prohibit lenders from requiring a post-dated check or electronic access to a borrower’s checking account.  

The Dodd-Frank Consumer Protection Act , signed into law by President Obama in July 2010, does not grant the Consumer Financial Protection Bureau authority to cap interest rates which is the single most effective way to constrain predatory lending.  State interest rate caps thus remain critical even if new federal rules are set to regulate payday loans.  

We understand that the CFPB proposal is only a first look at the agency’s approach.  We look forward to working with our state, regional, and national partners to help the CFPB craft new rules that will ensure that the small dollar loan market is affordable, responsible, and safe, especially for individuals and families struggling to make ends meet.  

 

Alex Mikulich, Ph.D.

Jesuit Social Research Institute

Loyola University New Orleans

mikulich@loyno.edu · (504)-864-7750

 

Robert D. Gorman

Executive Director

Catholic Charities of the  

Diocese of Houma-Thibodaux