New CFPB director puts target on payday loan rules

The new leaders of the Consumer Financial Protection Bureau (CFPB) are taking the most significant step yet toward unwinding rules panned by the finance industry and the GOP.

The CFPB announced this week that it would delay compliance with new regulatory rules for short-term, high-interest loans, commonly known as payday loans. The agency said it is considering how to roll back those rules.

{mosads}The reassessment is part of acting Director Mick Mulvaney’s broader push to rescind the bureau’s most aggressive regulations and refocus the agency’s work on promoting consumer freedom.

“The CFPB’s decision to revisit its small-dollar rule is welcomed news for the millions of American consumers experiencing financial hardship and in need of small-dollar credit,” said Richard Hunt, president and CEO of the Consumer Bankers Association, a trade group for banks.

“Under the current rule, many banks are forced to sit on the sidelines and prevented from offering affordable and popular small-dollar credit options to help meet the needs of their customers.”

Mulvaney’s move is a 180-degree turn from former CFPB Director Richard Cordray, who saw it as his mission to enact protections for vulnerable consumers.

Cordray, who is now running for governor of Ohio as a Democrat, called the intended review of the rule a “truly shameful action by the interim pseudo-leaders.”

“Never mind many thousands of people stuck in debt traps all over the country. Consumers be damned!” he tweeted.

“Let’s see the case be made, with full debate, on whether the zealots and toadies can justify repealing a rule to protect consumers against extortionate payday loans.”

The CFPB finalized the rules on payday lending in October 2017, seven weeks before Cordray’s resignation. The agency said it was acting to prevent predatory lenders from trapping customers into debt they can’t afford to pay, then collecting fees and settlements.

The rule imposes limits on how frequently a lender can offer, collect on and extend high-interest loans with deadlines of only a few weeks. Such loans are marketed toward customers with no other credit or financing options who need to cover emergency expenses.

These loans come with
interest rates as high as 400 percent, and borrowers who can’t afford to pay by the deadline are often forced to renew the loan, spiking their total debt to the lender.

The CFPB announced Tuesday, the day the rule entered the Federal Register, that it would allow lenders subject to the payday measure to ask for a delay in complying with the first deadline. Lenders covered by the rule must register with the CFPB by April 16, while the rest of the rule kicks in on August 19, 2019.

The bureau delayed the April deadline in order to prevent covered lenders from spending time and money to comply with a rule that could be drastically different, if it still exists, by 2019.

Supporters of the CFPB rule call it a critical protection for vulnerable consumers who are at risk of amassing enormous debt in a cycle of missed payments, overdraft fees and loans taken to cover loans.

Rep. Maxine Waters (Calif.), the ranking Democrat on the House Financial Services Committee, called the decision to review the rule “unacceptable.”

“The Trump Administration has struck again as it continues efforts to roll back important protections that benefit America’s hardworking consumers,” Waters said in a Tuesday statement. “Republicans are once again giving payday loan sharks a reprieve at the expense of hardworking Americans.”

While the bureau’s rule exempts certain short-term loans from banks and credit unions that are less likely to land their customers in crippling debt, many in the banking sector say the measure didn’t do enough to steer customers toward their ostensibly safer alternatives.
  Right-leaning policy groups say the rule would do more harm than good to low-income consumers. The Competitive Enterprise Institute (CEI), a libertarian nonprofit focused on economic regulations, argued that the cost of extending payday loans is overblown and that banning it would cause immense harm to consumers.

“Payday lenders provide a means for the unbanked to join the financial mainstream. Eliminating the already limited choices of marginalized Americans helps no one,” wrote CEI fellow Daniel Press in a report released Wednesday.

Critics of the payday rule have two venues for changing it. House Republicans are backing a resolution to repeal the rule and ban the CFPB from ever issuing a new rule on payday lending. While the repeal bill would likely pass the House along party lines, it’s unclear whether it could pass the Senate, where Republicans have only a one-seat majority.

While Congress pushes ahead with full repeal, the CFPB could try to indefinitely delay the rule as it goes through the lengthy process of rewriting or retracting it. Doing so could require an extensive comment and review period before the bureau releases its first proposal.

Meanwhile, Mulvaney announced Wednesday that the CFPB would issue a request for complaints about the bureau’s past regulatory and enforcement actions. The request “for evidence to ensure the bureau is fulfilling its proper and appropriate functions” will likely give the new CFPB hundreds of complaints with which it could justify changing the rule.

“It’s natural for the Bureau to critically examine its policies and practices to ensure they align with the Bureau’s statutory mandate,” Mulvaney, who is also the director of the White House Office of Management and Budget, said in a Wednesday statement.
“Moving forward, the Bureau will consistently seek out constructive feedback and welcome ideas for improvement.”

“Much can be done to facilitate greater consumer choice and efficient markets, while vigorously enforcing consumer financial law in a way that guarantees due process.”