Watchdog seeks to overturn crucial part of payday loan rules

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The Consumer Financial Protection Bureau will reconsider a crucial part of its year-old regulation of the payday lending industry, the agency said on Friday, a move that will likely make it harder for the bureau to protect consumers from abuse. potentials, if it were changed.

The CFPB finalized rules last year that would, among other changes, require payday lenders to consider their clients’ ability to repay their loans on a timely basis, with the aim of ending a harmful industry practice. according to which borrowers renew their loans several times. , get stuck in a cycle of debt. These “repayment capacity” regulations will now be reviewed in January 2019, the office said.

The office took more than five years to research, propose, revise and finalize the current regulations. The payday loan rules were the last regulations put in place by President Obama’s CFPB director Richard Cordray before he stepped down late last year to run for Ohio governor. .

The cornerstone of rules passed last year would have required lenders to determine, before approving a loan, whether a borrower can afford to repay it in full with interest within 30 days. The rules would also have capped the number of loans a person could take out in a certain period of time.

But since President Trump appointed interim director Mick Mulvaney, the office has taken a decidedly more pro-industry direction than under its predecessor. Mulvaney offered to review or revise virtually all of the regulations put in place during Cordray’s tenure.

The office is not proposing to review all payday loan regulations, but the crux of the matter is the repayment capacity rules. Without them, the regulations would govern only less important issues, such as preventing payday lenders from trying to debit a client’s account too often and ensuring that payday lending bureaus are registered with the authorities. Most of these rules would not come into effect until August 2019.

CFPB’s repayment capacity rules are complex, spanning hundreds of pages, and only governing short-term loans that many payday lenders rely on. The payday loan industry was adamant in its opposition and even lobbied unsuccessfully for Republican-controlled Congress to use its authority under the Congressional Review Act to veto the rules.

The industry argues that the CFPB rules are too complex and would lead to the closure of hundreds of payday loan stores and a substantial drop in lending volumes.

This is an argument with which the CFPB actually agreed since the industry derives most of its profits from recurring borrowers: those who take out a loan but struggle to repay it in full and renew the loan several times. When the rules were finalized last year, the bureau estimated that the volume of lending in the payday lending industry could drop by about two-thirds, with most of the decline coming from the fact that repeat loans do not. are more renewed. The industry, which operates more than 16,000 stores in 35 states, would likely experience thousands of payday loan store closings nationwide.

“Payday lenders don’t want to consider a borrower’s ability to repay a loan because they earn billions of dollars every year, trapping these consumers in a nearly impossible-to-escape cycle of debt where borrowers can repay. their loan by taking a new loan over and over again, ”said Karl Frisch, director of consumer group Allied Progress, who sharply criticized Mulvaney and his tenure at CFPB.

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