People helping people or people helping predatory lenders?
Recently, the Fifth Circuit Court of Appeals ruled that the CFPB’s funding structure was unconstitutional. The Court used the ruling to justify rejecting the CFPB’s 2017 rule which, before being watered down by the Trump administration in 2020, required payday lenders to meet basic lending standards, such as determining a borrower’s ability to repay a loan. Some in our industry celebrated the decision.
At Inclusiv, we have a different perspective. Credit unions are lenders founded to promote savings with a philosophy of people helping others and as such aligning their products with the success of their borrowers. Assessing whether a borrower can repay a loan is not only essential to our cooperative roots, but also the cornerstone of responsible lending. A loan, by its very definition, includes the notion of repayment. Thus, when a lender does not assess the ability of its borrower to repay the debt, the loan cannot be made responsibly. Indeed, without a balance sheet of repayment capacity, the activity is not really lending, it is speculation: A bet that the interest rate requested will be so high that it will largely compensate for the non-repayment of debts. Unsurprisingly, opponents of the CFPB’s payday loan rule included predatory payday lenders granting 400% or more APR loans, Silicon Valley-backed fintechs seeking to evade state usury laws that credit unions automatically meet through our interest rate cap, and other profits. motivated predatory lenders.
Industry voices supporting the repeal of the CFPB payday loan rule are likely hoping that they will have the opportunity to eliminate other important consumer protection rules that the CFPB has put in place, such as a law tougher on home mortgage disclosure and debt collection rules that protect borrowers from abuse by the collection industry. In taking this position, they have joined the voices of our credit union movement with predatory for-profit lenders who seek to siphon off wealth from people and communities who can least afford it, just to line the pockets of the wealthy. shareholders. Why?
The power and difference of credit unions comes from our cooperative, member-owned structure, our not-for-profit status, and the resulting commitment to our members. Credit unions are often the first financial responders to help people who have become trapped in a cycle of payday loan debt by providing affordable refinancing options and offering financial coaching to people who want effective one-on-one assistance in managing their finances. Let’s make sure our voices reflect these values and principles and ensure that we can continue to clearly articulate the credit union difference.
Cathie Mahon is President and CEO of Inclusiv in New York, NY