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New payday-loan rule may hit Black, Latino borrowers hardest



The Trump administration this week threw out a rule aimed at protecting working people from payday lenders.

This isn’t just the latest example of a business-friendly White House placing the interests of companies ahead of those of consumers.

It’s also the latest example of Trump ignoring the economic disadvantages of Black and Latino Americans and other people of color.

At issue is a common-sense regulation formulated by the Consumer Financial Protection Bureau under former President Obama.

It required payday lenders to “reasonably” make sure that low-income borrowers can repay loans that typically carry annual interest rates as high as 400%.

The idea was to prevent people from getting trapped in endless cycles of high-interest debt by repeatedly taking out new loans to pay off the previous obligations.

More than 80% of payday loans end up being rolled over into new loans or followed within days by a new loan, the CFPB determined in 2014. Half of all payday loans result in 10 additional loans to cover the original debt.

“Payday lenders prey on poor, low-wage earners and people of color,” said Linda Sherry, a spokeswoman for the advocacy group Consumer Action.

“The federal agency specifically tasked with protecting consumers from financial abuse has thrown consumers under the bus,” she told me.

Christine Hines, legislative director for the National Assn. of Consumer Advocates, echoed that sentiment.

“Payday lenders disproportionately target Black and Latino communities, hawking their high-cost loans on working families and trapping them in a cycle of debt,” she said.

The CFPB, under Trump’s appointee as director, Kathy Kraninger, says deregulating payday lenders will “maintain consumer access to credit and competition in the marketplace” by making it easier for people to get their hands on some fast cash.

“A vibrant and well-functioning financial marketplace is important for consumers to access the financial products they need and ensure they are protected,” Kraninger said in a statement, ignoring her own agency’s data on the dangers of payday and car-title loans.

The CFPB has determined that many short-term loan recipients are “likely to stay in debt for 11 months or longer,” making them ongoing sources of revenue for a $50-billion industry that preys almost exclusively on the poor and financially distressed.

The Pew Charitable Trusts determined that 12 million U.S. adults take out payday loans every year, with the average borrower receiving eight loans of $375 apiece and paying $520 in interest.

It found that Black people are at least twice as likely as other races to seek payday loans.

Twelve percent of Black Americans turn to the high-interest loans to make ends meet annually, Pew found, compared with 6% of Latino people and 4% of white people.

Bartlett Naylor, financial policy advocate for Public Citizen, said reducing accountability for payday lenders “throws blood in already turbulent waters.”

“And yes,” he told me, “in the end it’s a racist decision.”

Maybe it’s a reflection of the times, maybe just a clear-eyed appraisal of the economic landscape. Whichever, consumer advocates see an administration implementing policies that go out of their way to harm people of color.

“Pure and simple, the CFPB has put working families of color at greater risk of falling into debt traps,” said Mike Litt of the U.S. Public Interest Research Group.

Along with racial disparities, Pew found use of payday loans is higher among renters, people without college degrees, and people who are separated or divorced.

Knowing all this, the CFPB originally intended the new safeguard to take effect last summer.

The Trump administration delayed implementation of the rule in response to complaints from payday lenders that the ability-to-pay requirement was too burdensome and would cut into profits.

D. Lynn DeVault, chairman of the Community Financial Services Assn. of America, the leading trade group for payday lenders, welcomed the administration killing off the rule entirely.

He said requiring payday lenders to look into the creditworthiness of loan recipients is “simply unworkable.”

Fun fact: Payday lenders held their annual convention for the first time at the Trump National Doral Miami resort in 2018 and returned to the Trump-owned property last year.

The industry has contributed more than $1.2 million so far in the current election cycle, according to the Center for Responsive Politics. Three-quarters of that money has gone to Republicans.

Defenders of short-term loans make a fair point in saying borrowers often may not qualify for traditional bank loans, and that the high interest rates merely reflect the higher risk involved in lending to people living paycheck to paycheck.

That’s why the CFPB was correct in not cracking down too heavily on payday lenders. The companies perform a service needed by millions of Americans.

That said, it’s clear that this business is predicated for the most part on forcing people to keep taking out new loans and thus remain financially enslaved — and, yes, I use that word deliberately.

Payday loans are a form of economic servitude, keeping borrowers beholden to companies that know full well they profit most handsomely when customers have no escape.

There is no rational defense of such malicious business practices.

The CFPB under Obama was clear-eyed about the utility of payday loans. It repeatedly emphasized that it wasn’t trying to put payday lenders out of business.

Rather, it wanted the lenders to behave in a responsible manner, making funds available without trapping people in perpetual debt.

The CFPB under Trump has different priorities, not least giving providers of financial services as long a leash as they desire.

“The bureau protects consumers from unfair, deceptive or abusive practices, and takes action against companies that break the law,” the CFPB’s Kraninger declared.

“We will continue to monitor the small-dollar lending industry and enforce the law against bad actors,” she pledged.

If that rings hollow in light of the administration’s latest consumer-unfriendly measure, you’re not mistaken.