U.S. consumer watchdog revisits scaling back payday lending rules

February 6, 2019

By Katanga Johnson

WASHINGTON (Reuters) – The U.S. consumer watchdog on Wednesday proposed reviewing a rule cracking down on payday lenders, a move consumer advocates and some lawmakers blasted as a further sign the Trump administration is going easy on predatory lenders.

The Consumer Financial Protection Bureau is revisiting the payday lending rule, drawn up under the Obama administration, after payday lenders complained its “ability-to-repay” requirement would hurt the industry and consumers.

The proposal to repeal the ability-to-repay provision, which was due to go into effect in August, is the first big move by director Kathy Kraninger, a former Office of Management and Budget official who took over as CFPB director in December.

“The Bureau will evaluate the comments, weigh the evidence, and then make its decision,” said Kraninger, who added that she anticipates working with state and federal regulators to enforce the law against bad actors.

Payday loans are small and short term, typically due with a borrower’s next paycheck. Lenders argue they provide borrowers with critical stopgap funding, and warned the rule would effectively eliminate a product that can be a financial lifeline for many who lack access to more traditional banking products.

But consumer advocates have long criticized the loans for saddling borrowers with annualized interest rates that often reach several hundred percent.

“Eliminating these common sense protections will result in millions of hardworking families trapped in a cycle of debt and poverty,” said U.S. Senator Sherrod Brown, the top Democratic member on the Senate Banking panel.

“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, conceived by Obama-era CFPB director Richard Cordray, requires payday lenders to determine that the consumer has the means to repay the loan as well as meet other living expenses, when it comes due typically within 30 days.

The bureau first said it planned to revisit the rule in October 2018 under then-interim director and White House budget chief Mick Mulvaney. He had said the rule would hurt the industry and deprive consumers of critical stop-gap funding.

The CFPB was created in the wake of the 2007-09 global financial crisis to crack down on predatory lenders. Mulvaney and his fellow Republicans have long criticized the agency, saying it drastically overstepped its mandate under Cordray.

“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 CFPB, which worked on the rule for five years, estimated it would lower the industry’s revenue by two-thirds.

In a separate proposal, the agency said it was seeking industry comment to delay the implementation of the ability-to-repay provision by three months to Nov. 19, 2019.

This proposal, if adopted after 30 days, would allow the agency more time to re-consider the underwriting provision before mandating payday lending firms to comply with it.

It does not hinder its ability to enforce other components of the payday lending rule, CFPB officials told reporters.

“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.”


(Reporting by Katanga Johnson; editing by Michelle Price, Chizu Nomiyama, Jeffrey Benkoe and David Gregorio)

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