The Consumer Financial Protection Bureau will “reconsider” its rule regulating the payday lending industry, the agency said Tuesday, raising the prospect that the Trump administration will scale back or reverse the regulations put into place by former director and Obama appointee Richard Cordray.
“The bureau intends to engage in a rulemaking process so that the bureau may reconsider the payday rule,” the agency, now run on an acting basis by Trump appointee Mick Mulvaney, said in a brief statement, noting that the rule’s effective date of implementation is Tuesday.
Under Cordray, the agency finalized the rule in October. Cordray left the bureau in November and has launched a campaign for the Ohio governorship as a Democrat.
Following Cordray’s departure, Mulvaney, Trump’s budget director, took over the agency, although Leandra English, a Cordray appointee, has sued in federal court to be recognized as the acting director. English’s claim is supported by some congressional Democrats.
The payday lending industry fought the rule, warning that it would effectively prohibit almost all the loans they now make.
Consumer Financial Association of America head Dennis Shaul, whose group represents payday lenders, said that he was pleased by the announcement. “The Bureau’s rule was crafted on a pre-determined, partisan agenda that failed to demonstrate consumer harm from small-dollar loans, ignored unbiased research and data, and relied on flawed information to support its rulemaking,” he said.
The CFPB also said that it would “entertain” waivers from companies seeking to avoid the nearest deadlines under the rule while it prepares to engage in the rulemaking process to revise it.
Karl Frisch, executive director of the group Allied Progress, criticized Tuesday’s announcement. “The CFPB thoroughly and thoughtfully considered every aspect of this issue over the course of several years,” he said in a statement. “There is no reason to delay implementation of this rule – unless you are more concerned with the needs of payday lenders than you are with the interests of the consumers these financial bottom-feeders prey upon.”
Cordray had advanced the rule as a protection against borrowers falling into “debt traps,” or series of very high interest loans that dragged them further into debt. Under the regulations, lenders would have had to verify that borrowers had the ability to repay the loans.
The rule “had one simple premise: that lenders should not issue loans they know their borrowers cannot repay,” said Sen. Jeff Merkley, D-Ore. “There is no reason to defend payday lenders’ ability to issue loans that are, by definition, unaffordable, unless your goal is to prop up a predatory industry at the expense of consumers.”
Yet critics had argued that the ability-to-repay standard was inappropriate for payday borrowers, who frequently are in the middle of a crisis and are desperate for credit even if paying for it cuts into their other expenses.
“It is important to remember that hindering access to small-dollar loan products doesn’t eliminate a consumer’s need for those products,” said Beau Brunson, senior policy advisor for Consumers’ Research. “Instead, doing so only reduces their options and pushes them further into credit deserts. We need to be doing more to bring the underserved into the financial mainstream, which requires an empirical understanding of their needs.”
