10 Apr Community funds push for new payday-lending rules
A coalition of 57 community foundations has united to push for tough new rules to curb payday lending, signing a letter asking the Consumer Financial Protection Bureau to curtail a practice that “can trap consumers in a vicious cycle of debt.”
“Low-income neighborhoods across the United States are being assailed by predatory payday lenders, whose loans can carry annual interest rates of 400 percent,” Emmett Carson, chief executive of Silicon Valley Community Foundation, who spearheaded the effort, said in a statement.
The effort flowed from a White House meeting last year at which community foundations agreed to bring their collective voices to national issues, Mr. Carson said in an email to The Chronicle. He said it marked “the first time I am aware of a joint effort of this scale. I hope it is not the last.”
The Consumer Financial Protection Bureau last month said it was considering rules to regulate short-term loans, including payday loans, which offer small amounts that must be paid back in a short time, often 14 days. Many consumers have trouble repaying them on time, thus racking up additional fees or rolling them over into new loans that keep them in long-term debt.
The grant makers praised a measure the bureau is considering to require lenders to verify a consumer’s income, financial obligations, and borrowing history to ensure he or she can repay the debt when due.
“This provision would serve as a major safeguard for an industry that historically has exercised little, if any, underwriting criteria when making a loan,” they said in their letter, which was addressed to the bureau’s director, Richard Cordray.
They urged the bureau to limit the number of times lenders can roll loans over during a 12-month period and to bar them from requiring a postdated check or electronic access to a borrower’s checking account as a condition of extending credit.
Payday lenders argue they are the only source of loans for some borrowers, who could pay even more if they faced credit-card late fees or overdraft protection.
Silicon Valley Community Foundation has been working to restrict payday lending in California’s Santa Clara and San Mateo counties. Its grantees have won local ordinances to limit the concentration of payday lending in poor communities.
Other nonprofits have been working to influence the Consumer Financial Protection Bureau to take tough action against payday lending as part of their antipoverty work: the Mississippi Center for Justice, for example, which heads a state coalition that gathered stories about abuses to present to the bureau.