How payday lenders are working to dismantle new CFPB rules

Inside Subprime: October 13, 2017

By Caroline Thompson

We reported last Friday that the Consumer Financial Protection Bureau has unrolled some new rules to protect consumers from falling into a harmful debt trap at the hands of payday lenders. The rules would force lenders to do their homework before lending, and prevent them from lending to someone who is already behind on their payments a second or third time.

It would also:

  • Require lenders to conduct a “full-payment test” on loans over $500, which will determine before a loan is granted whether or not the borrower has the means to make the payments and still afford basic necessities.
  • Prohibit lenders from offering loan extensions more than three times, or for people who already have outstanding short-term loan debt.
  • Give credit-poor consumers access less risky loan options from community banks and credit unions.
  • Ban lenders from making more than two unsuccessful, direct-from-checking withdrawals without getting new authorization from the borrowers.

Unsurprisingly, payday lenders are not happy about these new restrictions, and have vowed to fight back against them.

“It’s almost certain there will be another Administrative Procedures Act lawsuit brought by the [payday] trade association,” Andy Arculin, a partner at Venable and a former senior counsel in the CFPB’s office of regulations told the Credit Union Journal. “It would be a very complicated lawsuit. These are difficult arguments to win on.”

Additionally, payday lenders are hoping to nullify the new rule using the Congressional Review Act, which they’re currently using to stop an earlier CFPB rule preventing financial institutions from hiding arbitration clauses in the fine print of their contracts.

While the arbitirian clause rule may indeed be repealed, experts are unsure whether the payday lending industry can garner up enough support from Republican lawmakers. Historically, protecting consumer interests has been a nonpartisan issue. According to the Credit Union Journal:

“Many Republicans, particularly those from states that have already enacted limits on small-dollar loans, may be reluctant to vote to overturn the CFPB’s rule. Doing so would carry real consequences, because the CFPB would no longer be able to enact rules regarding short-term loans without an affirmative vote by Congress.”

Without the votes needed to repeal the payday lending rule through the Congressional Review Act, payday lenders are hoping that, when current CFPB director Richard Cordray’s term is up in July 2018, President Trump’s replacement will nullify the rule, and potentially the entire bureau, a move that would be a huge blow to consumer interests.

For more information on the dangers of payday lending, check out these related pages and articles:

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