SIGN ON: Principles for Responsible Consumer and Small Business Loans to Prevent Predatory Lending
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The undersigned consumer, civil rights, community, housing, labor, faith, military and veterans, human rights, disability rights, older American, legal services, small business, and other organizations and academics agree that all loans should be safe and affordable. High-cost, unaffordable forms of credit or disguised credit are marketed as lifelines to consumers and small businesses, but predatory products do not provide access to affordable credit. Instead, they lead to financial ruin by trapping borrowers in high-cost loans and devastating cycles of debt that leave them worse off.
Some communities have been particularly affected or targeted by predatory forms of credit:
·       Communities of color, namely Black, Latinx, Native American, Asian American and Pacific Islander communities, have been denied opportunities to build wealth or access to sustainable credit and have been disproportionately shut out of opportunities to build assets through centuries of systemic discrimination. These communities have been targeted with high-cost, destructive products in the name of “access to credit.”
·       Workers making low wages have been offered high-cost or unaffordable loans, sometimes disguised as early payment of wages.
·       Small businesses have been subjected to predatory lending through high-rate loans disguised as merchant cash advances, high-cost loans secured by the business owner’s home, and other dangerous high-cost products that exploit the lack of legal protections for small businesses.
Predatory lenders use many different tactics that harm borrowers, including exorbitant interest rates and fees, add-on products, unaffordable balloon payments, collateral-based lending with minimal underwriting, and other abusive terms. High-cost credit products can take various forms, including short-term and long-term loans; lines of credit; and disguised forms of credit; fintech products and apps; access to or assignments of wages, business revenue or other income or assets; and other forms of disguised credit.
High-cost lenders have also used several strategies to evade interest rate caps and credit laws. Predatory lenders have laundered their loans through banks, which are largely exempt from state rate caps. Lenders have falsely claimed that they are tribal entities and are exempt from state laws. Lenders have also claimed they are not covered by credit laws or have taken advantage of loopholes in interest rate limits.
Predatory lenders often use forced arbitration clauses and class action bans to prevent accountability when they violate the law and engage in unfair, deceptive or abusive practices. These tactics take away borrowers’ constitutional right to access the courts.
In order to protect borrowers, especially low-income consumers, borrowers of color, and small businesses, we support the following principles to stop predatory lending:  
1.     Adopt effective interest rate caps of 36% or less for all consumer and small business lenders at the federal and state level, with lower rates for larger loans.  Interest rate limits are the simplest and most effective protection against predatory lending, aligning the interests of the lender and borrower to promote responsible lending.
·       CONGRESS should pass an interest rate cap no higher than 36% that covers all lenders, including banks, and continue to allow states to set lower rate limits.
·      CONGRESS, STATES, VOTERS, and REGULATORS should pass and enforce loophole-free interest rate limits no higher than 36%, inclusive of fees and ancillary products, for small dollar loans, and lower limits for larger loans.
2.     Prevent evasions of interest rate limits adopted by states and voters. American states have had interest rate limits since the American Revolution, and American voters, on a bipartisan basis, strongly support interest rate limits of 36% or less. But the lack of federal interest rate limits and creative evasions of predatory lenders have exposed far too many people to debt trap loans.
·       CONGRESS should support and not preempt the right of voters and states to protect people from predatory lending and should pass a national interest rate limit that covers all lenders, which would greatly reduce lenders’ ability to evade state caps.
·       STATE ATTORNEYS GENERAL and STATE CREDIT REGULATORS should challenge predatory lenders that attempt to evade state interest rate limits.
·       FEDERAL AND STATE BANK REGULATORS should stop banks from helping predatory lenders launder their loans to evade state interest rate limits.
3.     Apply credit laws to disguised forms of credit.  All forms of credit should be covered by basic credit laws, including rate limits, disclosures, ability-to-repay requirements, and other protections.

·       The FEDERAL GOVERNMENT and STATES should enforce credit laws against all forms of disguised credit and should not carve exemptions in credit laws for any form of credit.
4.     Require assessment of the borrower’s ability to repay: The ability-to-repay standard is a foundation of responsible lending. Every lender should take steps to reasonably ensure that the borrower can repay the loan as it comes due, based on the borrower’s income and expenses or obligations, while continuing to meet existing obligations, in affordable payments.  
·       The CFPB should enact and enforce strong ability-to-repay rules to protect consumers from debt trap loans including payday loans, title loans, installment loans, lines of credit, and disguised credit.
·       FEDERAL AND STATE BANK AND CREDIT REGULATORS AND ENFORCEMENT AGENCIES should enact and enforce ability-to-repay rules, should view lending without regard to ability to repay as an unfair, deceptive or abusive practice, and should stop their regulated entities from engaging in harmful collateral-based lending.
5.     Ensure access to the courts when laws are violated. Borrowers should always be allowed their day in court when the law has been violated. No attempt by a predatory lender to bypass the legal system should be allowed.
·       CONGRESS should restore and protect access to the courts for borrowers harmed by predatory lending, including consumers, workers, and small businesses.
·       STATES should ensure that borrowers have remedies against lenders through laws against unfair, deceptive and abusive practices.
6. Ensure that lenders treat borrowers fairly and with respect, and that they work with struggling borrowers.  Lenders and their debt collectors must not engage in harassment or intimidation, in or out of court. Lenders should offer reasonable options to help borrowers get back on track and should only use lawsuits as a last resort.

·     CONGRESS, STATES, and REGULATORS should adopt and enforce rules to protect borrowers from the unfair, deceptive or abusive debt collection practices of lenders, including using debt collection in lieu of responsible underwriting for ability to repay.

Predatory, unsafe credit shouldn’t be thought of as credit at all. Predatory lenders specifically target communities of color, low-income workers, and small businesses, stripping these communities of hard-earned wealth – usually with the purported justification that they are providing “access to credit.” Consumers need and deserve access to affordable, safe credit, but credit with high interest rates that traps consumers in devastating cycles of debt only leaves them worse off. We support the common-sense policy recommendations outlined above.
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