Congress misses deadline to repeal tougher payday loan regulations

Inside Subprime: May 24, 2018

By Jacob Rogers

Obama-era rules regulating the payday loan industry will remain in place after a Congressional deadline to repeal them passed last week.

The rules will require payday lenders to verify if potential borrowers are able to repay short-term loans with terms of 45 days or less. Lenders have to determine that borrowers could not only pay back the loan, but also afford other basic living expenses and larger financial obligations. Additionally, the regulations will require that only three loans can be made in a short time period to the same borrower. These rules are set to take effect in August 2019.

Congress passed on the opportunity to use the Congressional Review Act to overturn the regulations, but consumer advocates say this is no reason to be complacent.

“Now is not the time for celebration. Now is the time to double down and stand up to Trump, Mulvaney and their predatory payday pals,” Karl Frisch, executive director of consumer watchdog group, Allied Progress, told the Los Angeles Times.

Of course, since these rules were birthed during the Obama administration, the Trump administration, along with the Consumer Financial Protection Bureau, is trying to dismantle them. CFPB director Mick Mulvaney has said he plans to roll back the rules, along with many other regulations at the CFPB.

Mulvaney famously requested $0.00 in funding for the bureau earlier this year, citing money they already had as “sufficient for the bureau to carry out its statutory mandates for the next fiscal quarter.” For comparison, previous director Richard Cordray requested $86.6 million for the previous quarter.

Mulvaney has attempted to gain congressional support for the repeal of the payday rules, but the effort never got off the ground – a house resolution drew  just 44 cosponsors. Only three senators sponsored similar legislation in the upper house of Congress.

Repealing such legislation would mark a defeat for consumer protections surrounding payday loans. Requiring lenders to do their due diligence before giving money to people that will likely end up in a never ending spiral of debt would help protect financially vulnerable populations in the United States.

In states that allow payday loans, interests rates can exceed 400 percent as full repayment is typically due in two weeks. Combine this with the high rate of loan rollovers, and payday loans are a great way for desperate borrowers to get trapped in a cycle of debt. Rollovers can be particular dangerous, as the CFPB found in 2017 that 80 percent of payday loan borrowers rolled over their loans within 30 days.

For now, these rules will remain on track for implementation in August 2019, but consumer advocates are warning against complacency. Government officials have made their feelings clear about consumer protection rules. In the absence of oversight, knowledge is your best weapon against falling prey to predatory lending.

To learn more about why payday loans are so dangerous, check out these related pages and articles from OppLoans:


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