Federal payday lending rule could face repeal amid new battle

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CFPB - MICK MULVANEY

A federal watchdog may repeal a rule designed to ensure that consumers can afford to repay high-interest loans they take to help pay their bills between paychecks.

The Consumer Financial Protection Bureau, whose leadership shifted from an Obama administration appointee to a Trump administration pick late last year, said in a statement late Tuesday that it will take a new look at the so-called payday lending rule.

The watchdog, created under the Dodd-Frank safeguards enacted after the financial crisis, said in a statement that it “intends to engage in a rulemaking process so that the bureau may reconsider the payday rule.”

Although most provisions of the rule don’t take effect until August 19, 2019, the new rulemaking opens the door for a process that could revise or repeal the consumer safeguards.

Separately, proposed congressional legislation could nullify the payday loan rule without any action by the consumer bureau. Mick Mulvaney, the Trump White House budget director tapped to head the federal watchdog on an interim basis, has said he supports the legislation.

The potential revision or repeal focuses on a 2017 rule that would require payday lenders to determine, before granting a loan, whether a borrower could afford to make full repayment with interest within 30 days. The loans are often due within two weeks and include annual interest rates of roughly 390%, according to a 2014 report by the consumer bureau.

President Barack Obama used a visit to Alabama to promote policies that he said would protect working families, including new proposed regulations for payday lenders. (March 26) AP

The report, produced when the federal watchdog was headed by Obama appointee Richard Cordray, found that roughly 62% of all payday loans go to consumers who repeatedly extend repayments. Some end up owing more in fees than the amount they initially borrowed the report said.

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However, critics of the payday lending rule argue it would victimize the working poor who can’t pay for urgent financial expenses, such as a medical emergency.

In a report issued Wednesday, the libertarian Competitive Enterprise Institute cited a story about a single mother from Oakland, Cal. who took out a small-dollar loan to pay for an urgent car repair. Without that money, she likely faced a choice between losing her job or losing her apartment, the report said.

“Taking out such a high-cost loan may not be ideal, but many consumers have no better options,” the CEI report said.

The Community Financial Services Association of America, a payday lending industry group, signaled support for a repeal of the rule. Dennis Shaul, the group’s CEO, said in a statement that the rule was “crafted on a pre-determined, partisan agenda that failed to demonstrate consumer harm from small-dollar loans.”

The Consumer Bankers Association, a trade group focused on retail banking, urged the consumer bureau to examine the use of bank-offered small-dollar lending.

In contrast, the policy division of Consumer Reports, a non-profit group produces evidence-based product testing, ratings, and research, argued for full implementation of the payday lending rule.

The rule “targets the most abusive short-term lending practices” while “paving the way for more responsible lenders to emerge with safer alternatives,” said Suzanne Martindale, senior attorney for Consumers Union.

Allied Progress, a consumer group backed in part by the New Venture Fund, a public charity focused on conservation, education and other issues,  argued that Mulvaney is biased against the payday lending rule because he “took thousands of dollars from the payday industry” in the form of campaign contributions when he served as a Republican U.S. House member from South Carolina.

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