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Policymakers need enhanced consumer protections

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News from the Center for Responsible Lending

WASHINGTON, D.C. — Center for Responsible Lending (CRL) Senior Policy Counsel Nadine Chabrier issued the following statement:

“Holiday shopping is ramping up and shoppers are increasingly using new, underregulated credit products like ‘Buy Now, Pay Later’ and ‘Earned Wage Access.’ Retailers are also facilitating predatory point-of-sale loans for purchases including for puppies and jewelry. Policymakers should use this moment to recommit to strengthening consumer protections. Holiday dreams should not turn into debt nightmares.”

For decades, payday lenders have exploited low-income Americans in difficult financial circumstances, including people looking to finance holiday presents to delight family members. In recent years, there has been explosive growth in new credit products. Unlike payday loans, these new products offer potential benefits, but like payday loans, these loans can overwhelm consumers with debt.

In the policy brief “Buy Now, Pay Later: No Free Pass from Consumer Protections,” CRL provides policymakers with recommendations, including that the Consumer Financial Protection Bureau (CFPB) should regulate these loans like credit cards. This would include requiring that lenders verify a borrower’s ability to repay a loan.

In the policy brief “Earned Wage Access: States Should Regulate as Credit, Protect Consumers,” CRL distinguishes between employer-based, veritable Earned Wage Access and direct-to-consumer, faux Earned Wage Access, which it urges the CFPB to regulate like payday loans.

CRL has called attention to predatory puppy loans and other point-of-sale financing that employs a rent-a-bank scheme. It urges the Federal Deposit Insurance Corporation (FDIC) to stop banks from backing these loans, which violate state usury laws.

CRL has also advocated for Congress, and for states with weak interest rate caps, to enact limits of no higher than 36% APR for loans.

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