The Trump administration continues to gut the agency created with the specific purpose of protecting consumers.
This week, the Consumer Financial Protection Bureau proposed pulling back on rules for payday loans, car-title loans and small-dollar forms of credit. Under the Obama administration, the CFPB issued a rule that would require lenders to make sure borrowers have the means to repay their loans. The rule was set to take effect Aug. 19.
But now, under a new regime intent on looking out for lenders first, the CFPB wants to water down its own payday-lending protections.
“The bureau is preliminarily finding that rescinding this requirement would increase consumer access to credit,” the agency said in a release.
Translation: Let’s help lenders make more money off financially vulnerable consumers.
I have never been a fan of payday loans or similar products marketed to people with cash-flow problems. Lenders advertise that these loans are a saving grace for people. Short on cash? No problem, take out a payday loan. Or borrow against your paid-off automobile.
The loans are supposed to be paid back in full quickly, typically in a few weeks when the borrower gets his or her next paycheck. All a borrower needs is a bank account and income. They can give lenders a postdated personal check or authorize an electronic funds withdrawal.
Here’s the problem, one that those of us who work with people with chronic cash-flow issues fully understand. By the next payday, many borrowers can’t pay off the loan. Thus begins a debt cycle of payday loans.
Consumer advocacy groups have long been critical of payday loans because when the fees are annualized they often amount to triple-digit interest rates — more than 1,000 percent in some cases. The groups argue that the loans take advantage of cash-strapped consumers.
“While not perfect, the CFPB’s final payday lending rule was a giant step toward helping struggling families avoid debt traps. The regulation would have simply required that payday lenders consider whether loan applicants could afford their loan before extending credit,” said Christopher Peterson, director of financial services for the Consumer Federation of America. “Less than a day after calling for compromise and unity in his State of the Union address, President Trump’s consumer protection agency is proposing to eliminate rules, arrived at by compromise, which would protect struggling consumers from triple-digit interest loan traps."
There is no question that many people living paycheck to paycheck are unable to cover financial emergencies. The payday industry argues their loans are better than using high-interest credit cards. But it’s equally bad to borrow against your next paycheck. If you’re flailing now, won’t you be just as short of money next payday?
“The CFPB’s latest proposal will leave struggling borrowers vulnerable to falling further behind by giving payday and other high-cost lenders the green light to continue trapping them deep in debt,” said Suzanne Martindale, senior policy counsel for Consumer Reports.
But financial service companies cheered the move by the CFPB.
“The newly proposed payday loan rule is a crucial fix to a regulation that threatened access to credit for millions of Americans who need to cover emergency expenses between paychecks,” Daniel Press, policy analyst at the Competitive Enterprise Institute, said in a statement.
The Financial Service Centers of America (FiSCA) called the possible rollback of regulations a “thoughtful proposal.”
“We want to be clear that our industry never advocated for an environment without regulations. Rather, we support an environment in which consumers can continue to access responsible credit products through regulated lenders,” said Ed D’Alessio, executive director of FiSCA.
The agency has opened a 90-day period for the public to comment.
I hope enough people who have been negatively affected by payday loans let their voices be heard.
Here’s how to submit your comments once the proposal has been published in the Federal Register.
Electronic: regulations.gov. Click the link for “Advanced Search" then under agency look for “CFPB.” Follow the instructions for submitting comments.
Email: 2019-NPRM-PaydayReconsideration@cfpb.gov. Include Docket No. CFPB2019-0006 or RIN 3170-AA80 in the subject line.
Mail/hand delivery/courier: Comment Intake, Bureau of Consumer Financial Protection, 1700 G St. NW, Washington, D.C. 20552.
Color of Money question of the week
If you’ve ever used a payday loan, how did it work out for you? Did you become trapped in a debt cycle? Send your comments to email@example.com. Please include your name, city and state. In the subject line, put “Payday Loan.”
I’m live at noon (Eastern) today to take your personal finance questions.
It’s also “Testimony Thursday.” I want your financial success stories. Have you paid off debt? Do you finally have an emergency fund?
You can join the discussion by clicking this link.
Tax season 2019
This year may prove to be a difficult tax season because there are a lot of new changes to the tax code.
The deadline to submit 2018 tax returns is April 15 for most taxpayers. Because April 15 is Patriots’ Day in Maine and Massachusetts, they get a few extra days to file.
Last week I asked: Are you concerned about any of the tax provisions that kicked in last year?
One reader is not happy about the tax change involving state and local taxes. Under the new tax changes, the total combined deduction for sales, property and state and local taxes is limited to $10,000. Any state and local taxes you paid above this limit cannot be deducted.
Earl from Bowie, Md., wrote, “My wife and I have lived apart for several years, and we have filed separate returns since separating. There is one change in the new tax that penalizes married people who are separated and live in separate residences. The state and local income tax deduction has a $5,000 limit if you file as “married and filing separate.” As a result I will pay $1,200 more in taxes. Seems like there should be another filing status: “Married but separated and filing as single.”
Color of Money columns this week
Knowledge isn’t power. The right knowledge is power.
Stay informed about your money.
In addition to this newsletter, please read and share my weekly personal finance columns.
Newsletter comments policy
Please note it is my personal policy to identify readers who respond to questions I ask in my newsletters. I find it encourages thoughtful and civil conversation. I want my newsletters to be a safe place to express your opinion. On sensitive matters or upon request, I’m happy to include just your first name and/or last initial. But I prefer not to post anonymous comments. (I do make exceptions when I’m asking questions that might reveal sensitive information or cause conflict.)
Have a question about your finances? Michelle Singletary has a weekly live chat every Thursday at noon where she discusses financial dilemmas with readers. You can also write to Michelle directly by sending an email to firstname.lastname@example.org. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested.
To read more Color of Money columns, go here.
If you’re viewing this post online, sign up to automatically receive Michelle Singletary’s newsletters right into your email box: “Your Retirement” on Mondays and “Personal Finance” on Thursdays