For Immediate Release
Contact: Mike Saunders | Director of Military & Consumer Policy (202) 838-5050
July 9, 2020
Consumer Financial Protection Bureau Rescission of Ability to Repay
Puts Servicemembers and Veterans at Greater Risk of Being Preyed on by Lenders
Today, the Consumer Financial Protection Bureau (CFPB) rescinded the “ability to repay” provision of the 2017 Payday Rule that required lenders to assess a borrower’s ability to repay a loan. The CFPB had previously stopped supervising payday lenders for compliance with the Military Lending Act (MLA), and today’s announcement puts servicemembers and veterans at greater risk of being preyed on by lenders.
“CFPB’s move to allow predatory lenders to prey on the financially vulnerable, which are disproportionately veterans, is incredibly poorly timed,” said Mike Saunders, Director of Military & Consumer Policy at Veterans Education Success. “Payday lenders that don’t care if loans can be paid back shouldn’t be making them in the first place!”
Research shows that veterans take out payday or car title loans at rates far higher than the general population. A 2019 survey in Texas found that 45% of veterans had used payday or car title loans, compared to 7% of civilians. However, veterans accustomed to the effective, common-sense protection afforded by the MLA, are often unaware of the dangers that predatory lenders present to their financial health.
The cost of a payday loan is typically $15 for every $100 borrowed, according to the Consumer Financial Protection Bureau, which works out to a 391 percent Annual Percentage Rate (APR). The problem is that approximately 75% of payday loans are taken out by people who have taken out 11 or more loans in a year, and most of them are taken out within two weeks of repaying a previous one. That’s why payday loans are referred to as a “debt trap.”
One reason for this, ironically, may be the success of the MLA. Passed in 2006, the MLA caps the APR that may be extended to active duty servicemembers and covered dependents at 36% while also preventing the use of forced arbitration agreements. It is arguably the most successful federal consumer protection law on the books. As data from the Navy and Marine Corps Relief Society (NMCRS) shows, the MLA has decreased the number of active duty servicemembers who need zero-interest loans to get out of trouble with payday loans by approximately 99.8%. NMCRS, along with Army Emergency Relief and the Air Force Aid Society, offer zero-interest loans and grants to active duty servicemembers and military retirees in financial distress.
Roughly 12 million Americans take a payday loan each year, more than half of whom struggle to pay their regular bills. As the economic crisis spins out of control along with the health crisis caused by COVID-19, that percentage is expected to go higher.
“Our advice to veterans and military families is clear – don’t get caught in a debt trap,” said Saunders. “We urge the CFPB and the Trump administration to reconsider their decision and place hardworking veterans’ needs ahead of the needs of predatory lenders.”
About Veterans Education Success
Veterans Education Success is a veteran advocacy organization that works on a bipartisan basis to advance higher education success for veterans, service members, and military families and to protect the integrity and promise of the GI Bill and other federal education programs. The organization offers free help, advice, and college and career counseling to servicemembers, veterans, and their survivors and families using federal education benefits and helps them participate in their democracy by engaging with policymakers. Veterans Education Success also provides policy expertise to federal and state policymakers and conducts non-partisan research on issues of concern to student veterans. Additional information is available at www.vetsedsuccess.org.