The U.S. Consumer Financial Protection Bureau was proposing to review a rule that would regulate payday lenders on Wednesday, even though consumer advocates and several lawmakers blasted it as harmful to low-income Americans, according to The Washington Post.
The CFPB is revisiting the payday lending rule, implemented under former President Barack Obama, after lenders argued the "ability-to-repay" requirement was hurting the industry and consumers.
The proposal would repeal the ability-to-repay provision, which was originally scheduled to go into effect in August, was the first move by the new director of the CFPB Kathy Kraninger, a former Office of Management and Budget official who took on the new role in December.
“The Bureau will evaluate the comments, weigh the evidence, and then make its decision,” said Kraninger.
She also said the CFPB would work with state and federal regulators to enforce the law against any bad actors.
Payday loans are typically short-term and small, usually due within several weeks at the borrowers' next paycheck, which lenders said was an essential product that provides stopgap funding.
The industry argued the regulation would eliminate a product that could be a financial lifeline for those unable to access traditional banking.
But consumer watchdog advocates argued the loans would often weigh down borrowers by using predatory annualized interest rates, sometimes as high as several hundred percent.
“Eliminating these common-sense protections will result in millions of hardworking families trapped in a cycle of debt and poverty,” said Senator Sherrod Brown, the top Democratic member on the Senate Banking panel, to Reuter.s
“Stripping the key protections of this rule is a disservice to the public. With little accountability for their actions, payday lenders have long preyed upon communities of color and drained them of their hard-earned savings,” said Hilary O. Shelton, a senior vice president with the NAACP Washington Bureau.
The provision was thought of by former CFPB director Richard Cordray and requires payday lenders to determine that the consumer can repay the loan and meet their other living expenses during the period before repayment.
The Trump administration first announced it would revisit the rule in October 2018 after interim director and White House budget chief Mick Mulvaney said the rule would hurt the industry and consumers.
Even though the CFPB was created after the global financial crisis in 2009 to crack down on predatory lenders, a number of Republicans argue the agency overstepped its original bounds.
“Implementing this ability-to-repay provision was not a mandate by Congress, but an exercise of the agency’s discretionary jurisdiction. We are revisiting it to be certain that the legal basis is robust enough to continue to support the rule,” an agency official told reporters on Wednesday.
The latest proposal would rescind the ability-to-repay requirement and delay the rule from going into effect until 2020, even though the rule has already been worked on for more than five years.
The announcement is one of the major steps the Trump administration has taken in recrafting the consumer watchdog, which has already dropped several lawsuits against payday lenders and removed enforcement powers from its fair lending office.
“We are pleased that the CFPB is going to delay the payday rule for further consideration,” said Dan Berger, who leads the National Association of Federally-Insured Credit Unions.
“We support the removal of problematic ability to repay portions of the rule, but we also want to ensure, that going forward, the egregious practices of certain payday lenders are addressed.”
-WN.com, Maureen Foody