In Support of Strong Federal Regulation of Payday and Automobile Title Lenders
Adopted at the 87th Annual Meeting in 2019
WHEREAS, payday and automobile title lenders typically charge a 300 percent to 400 percent annual interest rate that most borrowers cannot pay back without taking out another loan; and
WHEREAS, these usurious interest rates are compounded by high rates and fees; and
WHEREAS, the Center for Responsible Lending has found that the average payday or automobile title borrower takes out 10 loans and pays a 391 percent interest rate and that 75 percent of the industry's revenues are generated by repeat borrowers; and
WHEREAS, a 2014 Consumer Financial Protection Bureau (CFPB) finding clearly showed that this debt trap is not an incidental byproduct but is a core feature of the industry's business model, as evidenced by an ACE Cash Express employee training manual that literally featured a closed, circular diagram outlining its loan process; and
WHEREAS, on October 5, 2017, the CFPB issued a final rule to govern payday, vehicle title, and certain high-cost installment loans, with compliance scheduled for August 19, 2019; and
WHEREAS, CFPB issued the 2017 final rule after a comprehensive five-year process of reviewing consumer complaints, holding numerous stakeholder meetings around the country, convening field hearings (Birmingham, Nashville, Richmond, Kansas City), convening and receiving reports from its Small Business Advisory Review Panel and its Consumer Advisory Board, issuing a proposed rule, and reviewing over 1.4 million comments; and
WHEREAS, the 2017 final rule would have provided strong consumer protections from the worst practices of payday and automobile title lenders, including strong underwriting provisions that would require lenders to:
- Verify the consumer's net monthly income using a reliable record of income payment, unless a reliable record is not reasonably available,
- Verify the consumer's monthly debt obligations using a national consumer report and a consumer report from a "registered information system" as described below,
- Verify the consumer's monthly housing costs using a national consumer report if possible, or otherwise rely on the consumer's written statement of monthly housing expenses,
- Forecast a reasonable amount for basic living expenses, other than debt obligations and housing costs, and
- Determine the consumer's ability to repay the loan based on the lender's projections of the consumer's residual income or debt-to-income ratio; and
WHEREAS, the underwriting provisions of the 2017 rule would have further prohibited a lender making a short-term loan to a consumer who has already taken out three covered short-term or longer-term balloon-payment loans within 30 days of each other, for 30 days after the third loan is no longer outstanding; and
WHEREAS, the 2017 final rule offered an alternative approach that would allow lenders to make up to three short-term loans to a borrower without meeting all the specific underwriting criteria set out above, as long as the loan satisfies certain prescribed terms, the lender confirms that the consumer meets specified borrowing history conditions, and the lender provides required disclosures to the consumer, provided that the first loan has a principal amount no larger than $500, the second loan has a principal amount at least one-third smaller than the principal amount on the first loan, and the third loan has a principal amount at least two-thirds smaller than the principal amount on the first loan; and
WHEREAS, on February 6, 2019, CFPB issued two proposed rules: one that would delay the compliance date for the underwriting provisions of the 2017 rule and another that would rescind the underwriting provisions of the 2017 rule; and
WHEREAS, these proposed rules would considerably weaken the 2017 rule, to the point of rendering it meaningless; and
WHEREAS, the 2019 proposed rules were prepared with little public input and minimal public notice and are based on the premise that there is "insufficient evidence" of the need for the underwriting provisions of the 2017 final rule despite the mountain of data and evidence collected by CFPB between 2012 and 2017; and
WHEREAS, in 2006 Congress enacted the Talent-Nelson Military Lending Act (PL 109-364)), which instituted an interest rate cap of 36 percent, including all fees and ancillary charges, for loans to active-duty members of the military; and
WHEREAS, a 2012 Consumer Federation of American report found that the Talent-Nelson Military Lending Act had been effective in curbing predatory lending to members of the military; and
WHEREAS, by enacting the Talent-Nelson Military Lending Act, Congress effectively said that payday, automobile, and other predatory lenders harm consumers and that a reasonable federal cap on interest rates is needed to curb the worst abuses of those predatory lenders; and
WHEREAS, 18 states and the District of Columbia protect their citizens from usurious payday and automobile title lending by setting interest rate caps or usury limits or by prohibiting such lenders altogether; and
WHEREAS, action in the rest of the nation is stymied by industry capture of state legislatures; and
WHEREAS, in those remaining states, including Texas, local governments have used their limited powers to address this issue, through zoning and other means and by working to create alternatives to payday lenders; and
WHEREAS, in those states, even these limited local actions are constantly threatened with preemption by state legislatures that are unduly influenced by the payday and automobile title lending industry; and
WHEREAS, the 2017 CFPB rule, if implemented, would build a strong foundation for protecting consumers nationwide and would bolster efforts to develop alternative opportunities for small, short-term loans,
NOW THEREFORE BE IT RESOLVED, that The United States Conference of Mayors supports implementation of the October 5, 2017 CFPB rule to govern payday, vehicle title, and certain high-cost installment loans; and
BE IT FURTHER RESOLVED, that The United States Conference of Mayors opposes the February 6, 2019, CFPB proposed rules to delay the compliance date for the underwriting provisions of the 2017 rule and rescind the underwriting provisions of the 2017 rule; and
BE IT FURTHER RESOLVED, that The United States Conference of Mayors urges Congress to extend the protections from predatory and usurious lenders provided by the Talent-Nelson Military Lending Act to all Americans.