Mick Mulvaney asks court to delay restrictions on payday lenders

Inside Subprime: June 13, 2018

By Lindsay Frankel

In a lawsuit against the Consumer Financial Protection Bureau (CFPB) filed last week, two payday lending industry trade groups have found a surprising ally – Mick Mulvaney, acting director of the CFPB. The Community Financial Services Association of America (CFSA) and The Consumer Service Alliance of Texas brought this legal battle to a federal court in Texas after failing to block Obama-era restrictions on payday lending scheduled to go into effect next year. The CFPB asked a judge to postpone the rules until the lawsuit reaches a resolution, a process that could take years.

In the meantime, Mulvaney plans for the CFPB to reconsider the 2017 payday lending rules. A formal administrative process is scheduled to begin in February and may result in the rules being revoked altogether. The restrictions, which were developed to protect consumers from the disreputable business practices that payday lenders are known for, would require lenders to verify a borrower’s ability to pay back a loan, among other protections.

The two plaintiffs are arguing that the rules would effectively shut down the payday lending industry, curtailing access to credit for millions of customers who are underserved by banks. Dennis Shaul, chief executive of the CFSA, added that it would be illogical for companies to prepare to follow rules that the CFPB intends to block.

“It makes no sense to force companies to comply or prepare to comply with a rule that may never take effect,” he said.

Consumer advocacy groups complained that the lawsuit was intended to stall the rules long enough for the CFPB to repeal them.

“You have to give notice and let the public say their piece. You don’t get to say, ‘I just don’t like it, so I’m going to do a legal end run around it,’” said Linda Jun, a policy lawyer for Americans for Financial Reform.

Payday loans are marketed to desperate borrowers as quick-fix solutions to financial distress, but the high interest rates and fees associated with these products make them risky for low-income individuals. Most borrowers will end up paying more in interest and fees than the original amount of the loan, according to Pew Charitable Trusts. These pricey loans can land borrowers in a cycle of debt that is impossible to overcome.

Since taking over as interim acting director of the CFPB in November, Mulvaney has dropped several lawsuits against predatory payday lenders. Despite that 75 percent of Americans support tightening regulations on payday loans, Mulvaney has moved toward reducing payday lending restrictions. He has also received criticism for accepting campaign contributions from the payday lending industry.

While the CFPB payday lending rules are on hold, many Americans will be left vulnerable to predatory lenders, particularly in less restrictive states, which tend to have higher interest rates and usage rates. Payday loans in Oklahoma have the highest usage rate in the nation at 13 percent, and Pew considers Oklahoma policy to be permissive to payday lenders. In states that allow payday lending, consumers need to be aware of the predatory lending practices that the 2017 rules intended to block in order to protect themselves from ongoing debt.

To learn more about payday lending in the United States, check out these related pages and articles from OppLoans:


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