Single-digit winter highs test Mainers’ endurance and our above average resistance to the winter weather, but braving the temperatures is only half the battle. With lower temperatures come higher electric and home heating bills, and low-income families living paycheck to paycheck or on a fixed income can find it difficult to make ends meet. With some Maine residents turning to payday loans to avoid utility shutoffs, the Consumer Financial Protection Bureau’s (CFPB) rule to curb predatory payday lending has never been more important.
But with the CFPB’s recent proposal to gut the rule — stripping its most meaningful ability-to-repay requirements — the CFPB is not acting in the best interest of Mainers.
Payday lenders prey on families who lack the financial footing to absorb unexpected expenses, such as skyrocketing utility bills. Triple-digit interest loans claim to help address short-term needs, but they create a long-term problem — a debt trap of interest, fees and reborrowing that sees many people repaying their initial loan many times over. When paid using a payday loan, a high energy bill in February and March can saddle Mainers with debt well into the summer months and beyond.
Maine consumers facing unaffordable utility bills have better options than loans that will ensnare them in a debt trap. Utilities are required to work with customers facing sudden and unexpected expenses or loss of income, and low-income financial and bill payment assistance programs are also available to those who qualify. Additionally, strict rules in Maine limit the right of electric and gas utilities to disconnect service during the winter months, giving people time to catch up on those big bills. But, consumers who heat with fuel oil do not have these protections and are even more at risk for these high interest loans.
Payday lenders target consumers who are unaware of better options and turn to payday loans to keep the power and heat on. For them, commonsense regulation of payday lenders can mean the difference between timely repayment and a long-term debt trap.
Payday lenders are not as prevalent in Maine as in other states, but those that operate here are allowed to charge annual interest rates and fees in excess of 200 percent, and some Mainers turn to illegal online loans. On average, Mainers pay at least half a million dollars each year in fees and interest on payday loans and to predatory lenders, and the industry lobbyists are looking for more ways to profit off cash-strapped residents. Fortunately, in 2017 the state Legislature rejected a proposal that would have brought more predatory lending into the Pine Tree State, but this practice continues anyway.
Nationwide, payday loans are all too common. A multi-year study conducted by the CFPB concluded that for many payday lenders, success was predicated on trapping borrowers in a cycle of debt. These lenders make the bulk of their profits off people stuck reborrowing seven or more loans in a row with interest and fees that are astronomical.
Based on such compelling facts, under prior leadership, the CFPB adopted a rule, set to take effect this year, to limit back-to-back loans and require lenders working with repeat borrowers to examine the borrower’s ability to repay the loan–looking at income and expenses in the way that responsible banks and other above-board creditors do.
But newly minted CFPB Director Kathy Kraninger has proposed to strip that ability-to-repay requirement and to allow payday predators to put people in an endless debt trap. These changes are directly due to pressure from the lucrative payday lending industry to weaken the prior rule. The public has until mid-May to weigh in, and Mainers, including Sens. Susan Collins and Angus King, must insist that the CFPB keep the original rule in place.
Snow and ice make Maine winters hard enough as is. We don’t need predatory payday lenders putting Mainers on a fast-track to more debt and despair.
Barbara Alexander is a nationally recognized consultant for consumers on utility issues and is a resident of Winthrop.