Officials decry proposed payday lending rule changes, tout diocese’s alternative programs
An estimated 12 million Americans use small-dollar loans each year. (NTC/Ben Torres)
FORT WORTH — The statistics are grim for a desperate borrower. With exorbitant interest rates on small payday or car title loans sometimes topping 500 percent, an average of 74 individuals each week had their vehicles repossessed in the Fort Worth area in 2016.
Rules that would have limited some predatory lending practices will be rescinded under a proposal from the federal government, drawing the criticism of Texas bishops and prompting concern nationwide that existing protections against loan sharks may weaken. However, a local program administered by the St. Vincent de Paul ministry offers an option to debtors.
The Small Dollar Lending Rule
Local Catholics join Catholic Charities USA and the U.S. Catholic bishops in opposing the Consumer Financial Protection Bureau’s Feb. 14 official proposal to rescind the so-called small dollar lending rule. Rescinding the rule, they argue, will harm many low-income borrowers. Several of those same officials hold scant hope for reconsideration of the CFPB proposal and are instead focused on spreading word of diocese programs available to assist low-income residents in need of loans.
Specifically, the proposal calls for rescinding the requirement that lenders of such loans must take steps to ensure that borrowers “have the ability to repay those loans according to their terms,” according to the government’s Federal Register.
The original rule, which CFPB announced in Oct. 2017, became effective Jan. 18, 2018 although most provisions have a compliance date of Aug. 19, 2019.
Genesis of the rule — the official title of which is the Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule — dates to former President Barack Obama’s administration. The rule, among other intentions, was designed to assist those harmed by the predatory practices of payday/title lenders.
The Texas Catholic Conference of Bishops (TCCB) and Diocese of Fort Worth officials applauded the announcement of the new rules in 2017 but argued that more still needs to be done and vowed to continue to fight for payday and auto-title reform on the local, state, and national levels.
The Effects of Deregulation
Competitive Enterprise Institute, in a Feb. 11 article, labeled CFP’s plans to do just that a “win for President Trump’s deregulatory agenda” and went on to state that, absent CFPB’s proposal to rescind certain components of the rule, businesses dealing in payday and vehicle-title loans would be all but wiped out, and loan options would be stripped away from “countless consumers.”The CFPB on Feb. 6, however, announced their intent to seek to delay implementation of the rule until 2020 and to remove key requirements on small lenders.
Others point to abuses of the payday loan model and disagree.
Speaking to Milwaukee Independent in a Feb. 10 article, Vanita Gupta, president and CEO of the Leadership Conference on Civil and Human Rights, called the CFPB’s current proposal a “shameful” attack that would gut protections for consumers from predatory lenders.
“This decision will put already struggling families in a cycle of debt and leave them in an even worse financial position,” Gupta told Milwaukee Independent. “[The Trump] Administration has moved CFPB away from protecting consumers to protecting the very companies abusing them.”
In the same article, former CFPB Chief Richard Cordray characterized the plan to rescind as a “bad move that will hurt the hardest-hit consumers.”
Payday loan stores outnumber McDonald’s restaurants in the U.S., according to an October 2017 New York Times article. An estimated 12 million Americans use small-dollar loans each year, but not without risk.
Bishops Get Involved
The United States Conference of Catholic Bishops last month signed a letter along with other Christian groups expressing concern that CFPB’s hope to rescind the small dollar lending rule will harm low-income borrowers. Through the letter they encouraged CFPB to strengthen rather than weaken the rules.
“A business that targets vulnerable people with a product that leaves most of its customers worse off does not contribute to the common good,” the letter reads.
The letter, which was penned by the group Faith for Just Lending, also stated that on average, “borrowers take out eight loans a year to repay the original [payday] loan. Weakening the ability to repay standard will undoubtedly ensnare borrowers in a cycle of debt.”
The CFPB is accepting comments through May 15 on their proposal to rescind certain sections of the 2017 rule.
Texas Impact
The Texas Fair Lending Alliance and Texas Faith Leaders for Fair Lending determined that Texans paid $7.5 billion in fees for such loans from 2012 to 2016 during which time 186,685 families lost their vehicle to auto title companies. Many paid more than the value of the original loan at annual percentage rates ranging from 200 percent to more than 500 percent.
The Texas Catholic Conference of Bishops, after learning that more than a third of clients served by Catholic charitable ministries had outstanding payday or auto title loans, initiated the Payday Lending Roadshow in 2013 to conduct listening sessions to learn more about people’s experience with such loans.
One Corpus Christi woman borrowed $1,000 through an auto title loan only to see her truck repossessed after having paid $1,800 on the loan. An 81-year-old Beaumont woman borrowed $380 in 2014 to buy medication for her daughter with breast cancer. The woman had to roll the loan over and was still paying on it more than a year after her daughter died.
Catholic Charities Fort Worth Policy Analyst Shannon Rosedale said CCFW workers often encounter similar stories from their clients with many paying 300 percent interest or more.
Fort Worth Bishop Michael Olson in 2017 called upon the Fort Worth City Council to join the more than 40 Texas cities that have passed ordinances regulating payday lending stores, a request Fort Worth has yet to act on.
Local Alternatives Exist
Both Rozanne Veeser, Mini Loan Conversion Program administrator for the Fort Worth District Council of the Society of St. Vincent de Paul, and Pat McMann, Fort Worth Diocese St. Vincent de Paul Society president, said they hold scant hope that the CFPB’s plans to rescind key consumer protections of the rule will be reversed under the current presidential administration.
“Not real hopeful,” Veeser said. “They seem anti-consumer protection. Perhaps after 2020 we’ll see a change.”
Helen Osman, communications director for TCCB, said the push continues for change at the state level as well.
“It’s still a priority for the bishops,” Osman said. “I’m not sure it’s a priority for [the Texas Legislature] right now.”
In the Fort Worth Diocese an alternative exists to payday and auto title loans in the form of the Mini-Loan Conversion Program (MLCP), overseen by the St. Vincent de Paul Society.
The Fort Worth Diocese’s district council initiated the program in 2016. Through the program, borrowers’ payday loans are paid off and replaced with a new loan, which the borrower must still repay. The new loan, however, comes with a longer term and a much lower interest rate.
Borrowers have to qualify and be approved, Veeser said, and are requested to complete financial coaching.
The loans, up to $3,000, are repaid at terms of nine to 24 months with a minimum payment of $50 per month at a current rate of about 3.5 percent.
The MLCP operates on a conference model and is offered through 11 parishes in the diocese.
“We added two more conferences this past year and are willing to talk to any parish interested in establishing a program,” McMann said. “[Payday loans] have been absolutely devastating to a lot of people and this is a wonderful alternative to that. The challenge is getting word out to people that this program exists.”
The need is great, Veeser said. In 2016, interest rates on payday and auto-title loans ranged from 214 percent to 527 percent in this area. That same year 3,850 cars were repossessed in the Fort Worth Metropolitan Statistical Division, averaging 74 per week.
For information on the MLCP and other programs contact Veeser at 817-675-8984.