New CFPB Rule Targets Payday and Car Title Lending Debt Trap

Arizona Should Expand Consumer Protections

Arizona PIRG

Consumers in states that are burdened by predatory short-term payday and car title lending will receive some relief from a final rule issued today by the Consumer Financial Protection Bureau (CFPB). Arizona already prohibits payday lending, which is crucial to prevent payday lenders from exploiting loopholes in the new rule. While the rule released today should be helpful in disrupting the abusive car title lending that still plagues Arizonans, advocates argued the state needs to expand consumer protections to also cover car title lending.

“The CFPB’s rule on predatory lending takes an important step towards protecting millions of Americans from financial ruin,” stated Diane E. Brown, Executive Director of the Arizona Public Interest Research Group (Arizona PIRG). “Policy makers should now take additional steps — such as prohibiting triple-digit car title loans — to further prevent Arizonans from falling off the financial cliff.”

The CFPB is not legally authorized to cap interest rates, so the new rule protects consumers by requiring lenders to make affordable loans – loans that borrowers can pay back without taking out another loan in order to cover living expenses. This ability-to-repay standard is expected to reduce the harms of predatory lending across the nation overall by disrupting the payday and car title lending business model, which depends on trapping borrowers in long-term, unaffordable debt.

The CFPB makes it clear that the rule is a floor for consumer protections, not a ceiling, and that it does not prevent states from enacting stronger laws, such as a rate cap.

Kelly Griffith, Executive Director of the Southwest Center for Economic Integrity said, “The CFPB’s rule makes it clear that the Arizona legislature should keep existing protections for consumers in place and not allow any weakening of current state policy which prohibits payday lending. The legislature should recognize the overwhelming support from voters and work to further prevent Arizonans from entering an endless cycle of debt.”

Payday and car title lenders have a long history of exploiting loopholes where they can find them, and state usury caps prevent this exploitation. The rate cap also ensures that borrowers are protected against the harms of these high-cost loans regardless of whether they are structured as short-term or long-term loans.

Cynthia Zwick, Executive Director of the Arizona Community Action Association, added, “Payday loans often masquerade as “lifesavers” for those in need, but they do not provide a realistic lifeline for many consumers. These predatory lending practices drown too many people in an endless cycle of debt. We are pleased that the CFPB’s rule offers protections that will disrupt the payday lending business model. We urge Arizona lawmakers to protect this rule, and to fight back against legislative and regulatory efforts to preempt or undermine the will of Arizona voters.”

The full CFPB rule can be found here: https://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/payday-vehicle-title-and-certain-high-cost-installment-loans/