CFPB resets the repayment eligibility of the portion of the payday loan rule

Diving letter:

  • The Consumer Financial Protection Bureau (CFPB) on Tuesday REMOVED the “ability to repay” provisions from a 2017 payday loan rule that never went into effect but is the source for a protracted legal battle.
  • The rules would have limited the number of consecutive short-term loans a borrower could take out and required lenders to verify borrowers’ incomes. The restrictions should save consumers – and lenders – $ 7 billion annually, the CFPB estimated.
  • However, the CFPB will maintain a provision in the 2017 rule that prevents lenders from withdrawing funds from a borrower’s bank account after two consecutive failed attempts. The provision also requires lenders to notify consumers in writing prior to their first attempt to withdraw.

Dive Insight:

Payday lenders argued that the 2017 rule would have reduced revenue by 55% for lenders offering loans of 45 days or less, adding that it would hurt to deprive consumers of access to emergency loans.

Opponents of payday loans claim that the greater damage lies in the often high interest rates on the loans. Eighteen states and the District of Columbia have restrictions on payday loans, the Consumer Federation of America said. And some House Democrats want an interest rate cap of 36%.

CFPB director Kathy Kraninger, on a Tuesday Press release, called the bureau’s decision to abolish much of the 2017 rule a win for consumer choice.

“Our actions today ensure that consumers can access credit from a competitive marketplace, have the best information to make informed financial decisions, and maintain critical safeguards without hindering that access,” she said.

The Trump administration’s opposition to the rule is well documented. A former CFPB employee alleged in a memo of The New York Timesthat Trump officials tampered with the agency’s research process to justify the 2017 rule change that was completed shortly before the resignation of Obama-era CFPB director Richard Cordray.

Two trading groups – the Community Financial Services Association of America and the Consumer Service Alliance of Texas – sued the CFPB to repeal the rule, and President Donald Trump’s then CFPB chief Mick Mulvaney sided with plaintiffs. A district court judge ordered a suspension of the rule’s compliance period in 2018 to give the office time to rewrite it.

More than 100 House Democrats urged the CFPB last year to reconsider its efforts to lift the repayment requirements and urge the judge to lift the suspension.

Congress may attempt to repeal the CFPB’s rule under the Congressional Review Act within 60 legislative days of the rule being published in the federal register by a simple majority. The legislature tried this tactic with the latest revision of the Community Reinvestment Act by the Office of the Comptroller of the Currency.

Consumer protection groups like Public Citizen or the National Consumer Law Center can challenge the CFPB in court, arguing that the office violated the Administrative Procedure Act, which requires thorough investigation and analysis, not just a political disagreement, to change existing rules. American banker reports.

“In the midst of an economic and health crisis, the director of the CFPB decided to invest a lot of time and energy in lifting a protection that would have saved borrowers billions in fees,” said Linda Jun, senior policy counsel for another consumer protection group, Americans for Financial reform, said Tuesday, after The New York Times.

Senator Sherrod Brown, D-OH, said in a statement Tuesday that the CFPB had given “payday lenders right.” what they paid for by eviscerating a rule that would have protected American families from predatory credit. “

Payday lenders have given $ 16 million primarily to GOP congressional candidates since 2010, the Center for Responsive Politics said.

The CFPB has encouraged banks to offer installment loans or lines of credit up to $ 2,500. The office issued a sample no-action letter in May that is designed to enable companies to develop such credit products without regulatory action.

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