CFPB Revisits Payday Loan Rules
Inside Subprime: Oct 23, 2018
By Lindsay Frankel
The Consumer Financial Protection Bureau (CFPB) plans to revisit the Obama-era payday lending rule, and critics have expressed concern that the bureau will soften consumer protections. The CFPB promises to “address reconsideration of the rule on the merits as well as address changes to its compliance date” by early next year.
The payday lending rule, which was introduced under former Director Richard Cordray, would have required payday loan providers to confirm a borrower’s ability to repay the loan, among other protections. Acting director Mick Mulvaney has concerns over the fairness of the rule and questions the research behind it. The bureau also sided with a payday loan trade group in a lawsuit intended to block the rules from going into effect.
According to several sources, the CFPB will likely either repeal or delay the rule’s protections regarding the borrower’s ability to repay. Other standards are more likely to hold up, including limits on payment withdrawal attempts and requirements that lenders communicate their plans to withdraw from a borrower’s account.
Proponents of the rule contend that payday loans trap borrowers in an insurmountable amount of debt due to high interests and fees. For example, 2016 data from Pew Charitable Trusts shows that payday loans in Idaho cost borrowers an average of 582 percent annual interest, one of the highest rates in the nation. Christopher Peterson of the Consumer Federation of America noted that the revisions would be a step backwards in protecting low-income families from undue financial harm. “If the bureau moves to undo that progress, it will harm millions of American families,” he said.
But payday loan providers argue that the payday lending rule, which was originally scheduled to go into effect in August of 2019, is too strict for businesses to reasonably be able to comply. Many lenders have said that the rule would put them out of business.
In addition to overhauling the payday lending rule, the CFPB plans to address issues arising from the debt collection market, due to the many complaints the bureau receives from consumers. The rule making agenda states that “by March 2019, the Bureau expects to issue a Notice of Proposed Rulemaking addressing such issues as communication practices and consumer disclosures.”
As the CFPB moves towards deregulation of the payday lending industry, the responsibility rests on consumers to educate themselves about the dangers of payday loans. While many states have strict protections against abusive loan practices, others have no limits on what payday lenders can charge borrowers. People in need of financial assistance should seek alternatives to payday loans whenever possible.
For information on predatory payday loans, check out all of our Subprime Reports.