Trump admin proposes changes to payday lending practices

by Ike Obudulu Posted on February 8th, 2019

Washington: The Consumer Financial Protection Bureau (CFPB) proposed revisions Wednesday to “Payday, Vehicle Title, and Certain High-Cost Installment Loans” to rescind rule requirements in an effort to increase consumer access to credit.

According to the Bureau, the Obama-era rules reduced competition, and there was insufficient evidence and legal support for the stricter regulations. The current rules require lenders to make underwriting determinations before issuing payday, single-payment vehicle title and balloon payment loans. The proposal will be open to comment for 90 days.

The Bureau is also proposing to delay the August 19, 2019, compliance date for the mandatory underwriting provisions of the 2017 final rule to November 19, 2020. This proposal will be open to comment for 30 days.

Financial Industry leaders, Dennis Shaul, CEO of the Community Financial Services Association of America (CFSA) released a statement saying “We are pleased by today’s announcement that the CFPB is proposing to rescind part of its 2017 final rule and to delay the compliance date. These rulemakings are good first steps, and we appreciate that the CFPB has recognized some of the critical flaws of the final rule as promulgated during former Director Richard Cordray’s tenure.”

However, many consumer protection and civil rights organizations are concerned for what this will mean for the “predatory” practices of pay day lenders on low income consumers. The interest on payday loans average 400 percent.

Hilary Shelton, NAACP Washington Bureau Director and Senior Vice President for Policy and Advocacy said:

“Today, the Consumer Financial Protection Bureau (CFPB), under the direction of Trump-appointed Director Kathy Kraninger, released its plan to roll back the central protections of the agency’s 2017 payday and car-title lending rule. Kraninger’s plan is to eliminate the rule’s underwriting standards — the widely supported heart of the rule – which require lenders to verify a borrower’s ability to repay their loan. This proposed rollback would result in more Americans falling into devastating debt traps.

The predatory, payday lending business model relies heavily on a borrower’s inability to repay their loans, which leads to a cascade of financial consequences that include bank penalty fees, delinquency on other bills, and even bankruptcy.”

CFSA Statement On New CFPB Small-dollar Lending Rule

Dennis Shaul, CEO of the Community Financial Services Association of America (CFSA), today released the following statement regarding the Consumer Financial Protection Bureau’s (CFPB) Notice of Proposed Rulemaking (NRPM) on small-dollar lending:

“We are pleased by today’s announcement that the CFPB is proposing to rescind part of its 2017 final rule and to delay the compliance date. These rulemakings are good first steps, and we appreciate that the CFPB has recognized some of the critical flaws of the final rule as promulgated during former Director Richard Cordray’s tenure.

However, we are disappointed that the CFPB has, thus far, elected to maintain certain provisions of its prior final rule, which also suffer from the lack of supporting evidence and were part of the same arbitrary and capricious decision-making of the previous director. Today’s new NPRM also does not appropriately address the issues and concerns that were raised in more than one million comments during the prior rulemaking process. As such, we believe the 2017 final rule must be repealed in its entirety.

“We do hope that the CFPB will also address illegal and unlicensed lenders operating in the shadows. This failure to protect consumers leaves them vulnerable to these bad actors and their unscrupulous lending practices. Continuing to target legal and licensed state-regulated lenders through regulatory restrictions on their ability to offer short term credit options will push consumers into dangerous, harmful alternatives. We also continue to believe that the Bureau, under former Director Richard Cordray, did not conduct an adequate cost benefit analysis and has failed to achieve the goal of treating similar products in an equitable manner.

“During the previous comment period, our customers spoke out in record numbers against the rule and the negative impact it will have on their ability to access credit. More than one million comments were submitted, which the Bureau largely ignored during the Cordray era. The review of comments received was so lacking in transparency that it is impossible to know how many comments were actually read by human eyes.

“Under former Director Cordray’s leadership, the Bureau took an unbalanced approach to its rulemaking and crafted a rule based on a partisan political agenda. This flawed rulemaking process ignored customer input, disregarded the disastrous impacts on small businesses, and outright circumvented the Administrative Procedure Act, which governs the federal rulemaking process.

“We hope that under the new leadership of Director Kraninger during the upcoming comment period, the Bureau will engage in a more transparent and balanced rulemaking process that genuinely considers customer comments and industry input.”

Consumer and civil rights organizations released the following statements:

“Kathy Kraninger is siding with the payday loan sharks instead of the American people. 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. But over the past year, payday lenders have spearheaded an effort, with Mick Mulvaney and now Kraninger’s help, to take consumer protections away from financially vulnerable Americans. We urge Director Kraninger to reconsider, as her current plan will keep families trapped in predatory, unaffordable debt,” said Rebecca Borné, Senior Policy Counsel at the Center for Responsible Lending.

“Stripping the key protections of this rule is a disservice to the public. With little accountability for their actions, payday lenders have long preyed upon communities of color and drained them of their hard-earned savings. We strongly urge Kathy Kraninger to reconsider her decision to weaken the payday lending rule and allow it to move forward as planned without delay. Every day that goes by without this crucial rule only threatens the financial security of American families throughout our country,” said Hilary O. Shelton, NAACP Washington Bureau Director and Senior Vice President for Policy and Advocacy.

“The CFPB’s decision to undo payday and car-title lending protections is a slap in the face to consumers—especially people of color—who have been victims of predatory business practices and abusive lenders,” said Vanita Gupta, president and CEO of The Leadership Conference on Civil and Human Rights. “This decision will put already struggling families in a cycle of debt and leave them in an even worse financial position. This administration has moved the CFPB away from protecting consumers to protecting the very companies abusing them.”

“UniodosUS, along with the thousands of Latinos who participated in a national campaign calling for a strong payday rule, have supported efforts to help protect vulnerable consumers and stop the abuse in the payday lending industry. Doing away with the critical ability-to-repay provision, as is currently proposed, will open the floodgates once more to unscrupulous lenders. Removing this critical protection will place working families in a position where they are once again easy targets for those seeking to increase their profits without care as to the devastation they are causing for so many Americans trying to make ends meet,” said Marisabel Torres, Senior Policy Analyst at UnidosUS.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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