Today AARP submitted a letter to the Consumer Financial Protection Bureau (CFPB) commenting on the agency’s proposal to regulate the payday lending industry. For years, many of AARP’s state offices have engaged their state legislatures and governors to secure consumer protections for Americans who find themselves in need of the small-dollar loans that the payday industry offers.
According to the Pew Charitable Trust, 12 million Americans use payday lending per year, on average spending about $520 on interest on an average loan of $375. Once a borrower takes out a payday loan, the terms and conditions make it very difficult to pay off even small loans quickly, leading to repeat loans and a cycle of debt that hurts both individuals and entire communities.
In the first federal regulation of its kind, the CFPB has proposed to establish consumer protections for borrowers and place some limits on payday lending. The wide-ranging proposal would require that lenders verify that consumers have the ability to repay a loan based on a review of their income and expenses. It would also place a limit on repeat borrowing, to reduce the recurring cycle of debt into which many borrowers fall. In addition, lenders would be required to provide meaningful disclosures when an individual initiates a loan.
AARP supports these efforts to curb lending practices that have long made it too easy for millions of Americans to fall into a cycle of debt, and very hard to regain their financial footing. While these changes alone will not be enough to reverse the years of unnecessary debt that so many individuals and communities have shouldered, they are a long-needed step in the right direction.
Cristina Martin Firvida is director of financial security and consumer affairs at AARP.