Business & Money

Consumer Protection Bureau considers rescinding payday loan protections

By Nisa Islam Muhammad -Staff Writer- | Last updated: Mar 5, 2019 - 10:52:45 PM

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The Consumer Financial Protection Bureau’s (CFPB) recent proposal to rewrite its 2017 final rule governing “Payday, Vehicle Title, and Certain High-Cost Installment Loans,” specifically, the rule’s requirements that lenders make sure borrowers can repay the loan before issuing it—received widespread criticism.

Congresswoman Maxine Waters (D-Calif.), chairwoman of the House Financial Services Committee, issued the following statement: “I am deeply troubled by the Consumer Bureau’s proposal to gut a much-needed rule that would have reined in payday lenders and ensure consumers can afford to pay off their loans. It is no secret that payday loans often lead to irreparable financial consequences for hardworking families, as they usually have interest rates of 300 percent or more, and borrowers frequently take out new loans to pay off old ones because the loans were never affordable in the first place.”

The proposal essentially sends a message to predatory payday lenders that they can continue to harm vulnerable communities without penalty, the statement added. “I urge Director Kraninger to rescind this proposal and work on implementing a comprehensive federal framework—including strong consumer safeguards, supervision, and robust enforcement—to protect consumers from the cycle of debt.” 

The bureau’s proposal suggests there was insufficient evidence and legal support for the mandatory underwriting (proof of repayment) provisions in the 2017 final rule.

“The Bureau will evaluate the comments, weigh the evidence, and then make its decision,” said Kathy Kraninger, director of the Consumer Financial Protection Bureau. “In the meantime, I look forward to working with fellow state and federal regulators to enforce the law against bad actors and encourage robust market competition to improve access, quality, and cost of credit for consumers.”

Not everyone is opposed to the new rule. “We are pleased that the CFPB is going to delay the payday rule for further consideration,” explained Dan Berger, National Association of Federally Insured Credit Unions president and CEO to media. “NAFCU supports the removal of problematic ability to repay portions of the rule, but we also want to ensure, that going forward, the egregious practices of certain payday lenders are addressed.”

The Center for Responsible Lending conducted research that found 16 states, now including Colorado, have completely stopped payday loans from trapping their residents in debt by establishing interest rate caps of no higher than 36 percent. Nearly 100 million Americans now live in this “pay day free land.” 

According to the Center for Responsible Lending, while the Consumer Financial Protection Bureau could not establish an interest rate cap, Congress has that authority and should do so— as it did on a bipartisan basis for military service members.

“Kathy Kraninger is siding with the payday loan sharks instead of the American people,” said Rebecca Borné, senior policy counsel at the Center for Responsible Lending. “The CFPB, under a previous director, spent five years developing these consumer safeguards, taking input from lenders, faith leaders, veteran and military organizations, civil rights groups, consumer advocates and consumers from across the country.” She and others urge Ms. Kraninger to reconsider the proposed plan.

In addition to rewriting the protections, the Consumer Financial Protection Bureau is proposing to delay the August 19, 2019 compliance date for the mandatory underwriting provisions of the 2017 final rule to November 19, 2020.