Murphy, Blumenthal Urge "Strongest Possible Rules" To Stop Predatory Payday Lending

Press Release

As the Consumer Financial Protection Bureau (CFPB) considers new rules to rein in predatory practices in payday loans and similar types of lending, U.S. Senator Chris Murphy (D-Conn.) and U.S. Senator Richard Blumenthal (D-Conn.) joined a group of 30 other senators in expressing their support for the initial steps the agency has already taken, and in urging the agency to issue the strongest possible rules to combat the "cascade of devastating financial consequences" of these high-priced loans.

In a letter to CFPB Director Richard Cordray, the senators urged the CFPB to focus on meaningful ability-to-pay standards for small-dollar loans. Such standards could help crack down on loans with astronomical interest rates and fees that low-income customers are highly unlikely to be able to repay. Payday loans, which use the borrower's next paycheck as collateral, often carry annualized interest rates as high as 500%. Such loans are frequently designed to trap borrowers in a predatory cycle of debt. A 2014 CFPB study found that four out of five payday loans are rolled over or renewed.

"We support the CFPB's initial steps towards releasing a proposed rule and urge you to issue the strongest possible rules to end the damaging effects of predatory lending," the senators wrote.

The senators continued, "Small-dollar, short-term loans with astronomical interest rates that pull consumers into a cycle of debt are predatory. These loans have high default rates, including after the borrower has already paid hundreds or thousands of dollars because of triple-digit interest rates. […] Even if consumers do not default on these loans, high interest rates, preauthorized payment methods and aggressive debt collection efforts often cause a cascade of devastating financial consequences that can include lost bank accounts, delinquencies on credit cards and other bills, and bankruptcy."

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