People Helping People, or People Helping Predatory Lenders?

Recently the Fifth Circuit Court of Appeals ruled that the CFPB’s funding structure is unconstitutional. The Court used this ruling to justify throwing out the CFPB’s 2017 rule that, prior to its 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 ruling.

At Inclusiv, we have a different perspective. Credit unions are lenders founded to promote thrift with an ethos of people helping people, and as such align 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 a cornerstone of responsible lending. A loan, by its very definition, includes the concept of repayment.   Thus, when a lender does not evaluate their borrower’s ability to repay the debt, lending cannot be done responsibly. Indeed, without an ability to repay assessment, the activity is not really lending, it’s speculating: A bet that the interest rate charged will be so high that it will more than offset the non-repayment of the debts. Unsurprisingly, opponents of the CFPB’s payday lending rule included predatory payday lenders making 400% or more APR loans, Silicon-Valley-backed fintechs seeking to evade state usury laws that credit unions comply with automatically thanks to our interest rate cap, and other profit-driven predatory lenders.

The industry voices supporting the repeal of the CFPB’s payday lending rule presumably hope that they will have the opportunity to eliminate other important consumer protection rules the CFPB has put in place, like a stronger Home Mortgage Disclosure Act and debt collection rules that protect borrowers from common collection industry abuses. In taking this position, they have joined our credit union movement’s voices with profit-driven predatory lenders that seek to siphon wealth from the people and communities who can least afford it, just to line the pockets of wealthy shareholders. Why?

Credit unions’ power and difference comes from our cooperative, member-owned structure, our not-for-profit status, and our resulting commitment to our members. Credit unions are often the financial first responders that help people who have gotten 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 speak to those values and principles and ensure we can clearly continue to articulate the credit union difference.

Cathie Mahon is President/CEO of Inclusiv in New York, N.Y.