The Trump Treasury Department recommended Tuesday that the Consumer Financial Protection Bureau rescind its major new rule regulating payday lending nationwide, officially stating the administration’s desire to see the rule, currently in regulatory limbo, go away altogether.
The recommendation came as part of a 222-page Treasury report on reforming the nonbank financial system, touching on “fintech” firms, payday lenders, debt collectors, student lenders, and more. The Treasury called for greater latitude for nonbank financing and also new federal guidelines on a range of nonbank lending.
“America is a leader in innovation. We must keep pace with industry changes and encourage financial ingenuity to foster the nation’s vibrant financial services and technology sectors,” Treasury Secretary Steven Mnuchin said in a statement on the release of the report.
The Treasury’s call to undo the Obama-era payday lending rule is likely to prove particularly controversial.
The rule was finalized last year by the Obama-appointed CFPB Director Richard Cordray shortly before he left office. It would have set nationwide requirements that payday stores and other small-dollar lenders ascertain that their customers have the ability to repay the short-term loans, which typically come at high cost.
The stated intent of the rule was to prevent borrowers from falling into “debt traps” of taking out a series of high-cost loans. The industry, however, complained that the rule would eliminate the industry altogether.
Tuesday’s report argues that the rule would cut off consumer access to credit, and that states already have the power to regulate payday lending.
Already, the Trump administration has taken action against the rule. Mick Mulvaney, President Trump’s acting director of the CFPB, began working shortly after taking office to revise it. He has also sought to delay it from going into effect. In general, Mulvaney, who also serves as Trump’s budget director and is a fiscal conservative, has moved to ease off of aggressive enforcement and lessen regulatory burdens.
Separately, the Trump administration has moved to loosen restrictions on banks offering payday-like products. Tuesday’s report suggested proceeding further with those reforms.
The report also makes a range of other recommendations for reforms to aspects of the financial regulatory system, including greater regulatory accommodations for new fintech products and services. Many of the recommendations would require congressional action.
It is the fourth and final in a series of reports requested by executive order by Trump on the topic of financial regulation.
