Payday, title lenders won't have to check ability to repay

Federal regulators are reversing a rule meant to protect people from taking out payday and title loans. Lenders will not have to check whether the borrower can repay these high-interest loans.

Consumer advocacy group Texas Appleseed reports that about 10,000 Houstonians lost their cars to title loans they couldn't pay back last year.

Tracy was one of them.

"This charge is probably as much as a quarter of the loan that I was paying back. But if you don't have the money in its entirety, you have to continue to renew that. So I did that about seven times before they picked up my car," said Tracy.


She says she lost her car to the title loan she couldn't repay until she later had it returned through legal help.

Under the Trump Administration, the Consumer Financial Protection Bureau is reversing a rule set during the Obama era.

Now payday and title lenders will not have to check whether a borrower can repay the loan by checking things like income, rent payments, or student loan payments.

That concerns consumer advocates, including Ann Baddour, Director of the Fair Financial Services Project for Texas Appleseed.

"They borrow again and again and again and a $200 payday loan very quickly balloons into $800, $900, $1000, so the initial rule was designed to address that problem," said Baddour.


The Community Financial Services Association of American, which represents small-cash lenders, wrote in a statement, "The CFPB’s action will ensure that essential credit continues to flow to communities and consumers across the country, which is especially important in these unprecedented times. The ability-to-repay provisions were simply unworkable and imposed burdens on consumers and lenders in the form of unreasonable levels of documentation not even required of mortgage lenders."

But consumer advocates worry more people will get in over their heads with payday or title loans during the economic crisis.

"In a desperate moment, they may be tempted to use their car to get some quick cash. But what we see time and time again is a recipe for disaster. One in five borrowers ends up losing their car," said Baddour.

Added Tracy about her experience, "So you're continuing to do that renewing on the hopes that you gather enough money to go ahead and pay it off, but that never happens."

If you're having trouble repaying a payday or title loan, you can reach out for help to,
or a credit counselor.