Coalition of State AGs Oppose Plan to Delay Protections from Payday Loans
Inside Subprime: April 15, 2019
By Jessica Easto
A group of more than two dozen state attorneys general penned a letter last month to the Consumer Financial Protection Bureau (CFPB) opposing the Trump Administration’s plans to delay a consumer protection rule for payday loans.
In February, the CFPB proposed to delay a rule that would, among other provisions, require payday loan providers to verify that borrowers are able to meet the terms of loans before finalizing them. The rule, devised during the Obama administration, was intended to curb predatory lenders that have historically targeted vulnerable Americans. The rule went into effect last year, but compliance isn’t scheduled to be enforced until August. The CFPB’s proposal would delay enforcement even further.
The letter was sent to CFPB Director Kathleen Kraninger and criticized the delay of this provision and alternative provisions that would protect consumers. Among the state attorneys general who signed the letter are Xavier Becerra of California, Gurbir Grewal of New Jersey, and Letitia James of New York. The letter indicated that the state attorneys general are particularly concerned by this matter because they share enforcement authority with the CFPB.
“The delay in the underwriting protections will leave the citizens of our states unprotected from many types of exploitative loans,” the letter states, “and could embolden lenders who seek to circumvent the laws of those states with strong protections against such loans.”
Payday loans are short-term, small-dollar loans that come with high interest rates and fees. Because they do not require credit, they are often used by those who do not qualify for traditional lending products and have difficulty making ends meet month-to-month. Payday loans are often advertised as an advance on a paycheck, but borrowers are frequently unable to meet their terms, which can lead to a cycle of debt that is difficult to recover from.
In a statement issued in February, the CFPB states that “there was insufficient evidence and legal support” to justify the payday loan rule.
The letter indicated that the CFPB’s proposals to delay the rule “were issued only after representatives of the payday industry secretly lobbied CFPB’s former acting Director Mick Mulvaney, and after CFPB falsely denied that such a meeting had occurred.”
“The Trump political appointees at the Consumer Financial Protection Bureau have forgotten the essential mission of their agency—to protect consumers,” said Becerra. “The CFPB’s proposed rule change would allow payday lenders to target and take advantage of our nation’s most vulnerable borrowers rather than issue loans based on a person’s ability to pay.”
In the letter, the state attorneys general warned that they will “consider taking legal action if CFPB unlawfully proceeds.”