Washington, DC - Wednesday, United States Senator Elizabeth Warren (D-Mass.) sent a letter to Consumer Financial Protection Bureau (CFPB) Director Kathy Kraninger following news that the CFPB has proposed a new rule to make it easier for payday lenders to trap borrowers in endless cycles of debt.
According to the Federal Reserve, one in four families does not have adequate savings to cover an unexpected $400 expense. These families often turn to short-term high-interest loan products to make ends meet. But, most borrowers are not able to pay back the loans on time and roll over or renew the loan, accumulating a new set of fees. Some find themselves trapped in a cycle of debt that lasts months or years and ends up costing many times the original loan in interest and fees. These practices devastate families who are stretching to cover their basic needs.
"This new rule eliminates crucial protections for borrowers and makes it clear that the CFPB is not doing its job to protect consumers," said Senator Warren. "Instead, it is giving the payday lending industry free rein to squeeze consumers and catch them in cycles of debt."
In October 2017, the CFPB finalized a carefully calibrated rule to end these devastating cycles of debt while preserving access to this source of credit for borrowers in need who could repay the loans. Yesterday, the CFPB released a proposal to rescind key elements of the October 2017 rule. In doing so, it erased five years of work and signaled that, under Kraninger's leadership, the CFPB will continue her predecessor's legacy of prioritizing the interests of abusive payday lenders over the interests of consumers.
Senator Warren requested that Kraninger immediately rescind the proposed new rule and restore the CFPB's statutory mission. "The rule you released today makes a mockery of the CFPB's statutory mission of protecting consumers. It should be withdrawn immediately," Senator Warren wrote in her letter.