Public Comments Pour In Over Changes to Payday Loan Rule
Inside Subprime: May 15, 2019
By Lindsay Frankel
The May 15 deadline for public comment regarding the Consumer Financial Protection Bureau’s proposed changes to the Obama-era rule governing payday loans and title loans is fast approaching, and the agency has received about 26,000 comments on the issue.
The rule, which was drafted in 2017 under previous director Richard Cordray, would require that payday loan firms verify that a borrower can reasonably repay a loan before it is issued, and would place limits on how often payday loan firms can attempt to withdraw payments from a borrower’s bank account.
In February, current CFPB director Kathleen Kraninger announced the bureau’s intention to rescind the underwriting requirements of the payday loan rule, which would require that payday loan firms look at a borrower’s income, total debt, and spending behavior to determine the appropriate loan amount. Since then, Kraninger has been criticized by consumer advocates and lawmakers alike for undermining the bureau’s mission of consumer protection and siding with the payday loan industry.
But now, the Wall Street Journal reports that many public comments support the revisions to the rule, since payday loan firms have pushed thousands of their customers to send supportive comments to the agency, according to consumer group Allied Progress. The group has uncovered duplicate language in nearly 25 percent of the comments sent to the bureau as of May 11, language which encourages the CFPB to ease regulations on payday lenders.
While it’s not uncommon for industry groups to provide pre-written comments for consumers to use when contacting lawmakers, the volume of supportive letters is somewhat surprising, given that only 1 in 10 Americans have a positive opinion of payday loans. Pew Charitable Trusts also found that three-quarters of Americans want stricter regulations for payday loans firms.
Despite providing access to cash for borrowers with bad credit or those who lack credit history, payday loans typically exacerbate financial hardship because the high interest rates and fees are unaffordable for most borrowers. Most people who use payday loans end up paying more in fees than the principal amount of the loan.
Regulations vary by state, which impacts which states have the most costly payday loans. For example, payday loans in Idaho cost borrowers an average of 582 percent APR because the state does not place limits on what payday loan firms can charge. As such, residents of some states will be particularly vulnerable to permissive federal rules regarding payday loans.
Many consumer advocates and Democratic lawmakers say that the CFPB’s mission to “protect consumers from unfair, deceptive, or abusive practices and take action against companies that break the law” has all but dissolved under the Trump administration. In addition to the agency’s decision to roll back portions of the payday lending rule, there has been a striking reduction in enforcement actions.
It remains to be seen how public comments will impact regulation of the payday lending industry going forward. “The Bureau will evaluate the comments, weigh the evidence and then make its decision,” Kraninger said of the proposed revisions.