Demonstrating the true colors of the Trump administration, the Consumer Financial Protection Bureau (CFPB) has proposed rescinding rules for payday loans, car-title loans and small-dollar forms of credit, thus deepening the quicksand of such borrowing for desperate and vulnerable consumers.
The agency’s action would kill an Obama administration rule to require lenders to make sure borrowers are able to repay their loans. It was to take effect Aug. 19, but the industry challenged it in court.
Now, to justify its action, the bureau claims eliminating that requirement would make it easier for consumers to obtain credit, ignoring the fact that the high cost of those loans, which average 391 percent for a two-week loan, can easily lead vulnerable borrowers into the quicksand of never-ending debt– all to the lenders’ benefit.
“The proposal to rescind the 2017 Rule for payday and vehicle title loans before it can be tested in the 'real world' seems not to be in keeping with the reason the CFPB was established--to protect consumers in the marketplace,” said Cathy Bowen, who has worked for several decades as a consumer and financial educator.
“Why wouldn't lenders want systems in place to reduce the risk of making loans to consumers who are not positioned to repay them in a timely manner? Payday and vehicle title loans are costly ways to borrow,” she stressed.
“Educating consumers about the pros and cons of using these borrowing options may be the best defense in the absence of laws and rules that prevent lenders from increasing their bottom line at the expense of uneducated consumers,” added Bowen.
Protecting Lenders’ Profit
In its announcement, CFPB said it “is concerned that (the Obama administration’s) provisions would reduce access to credit and competition in states that have determined that it is in their residents’ interests to be able to use such products, subject to state-law limitations.”
But Suzanne Martindale senior policy counsel for Consumer Reports disagrees.
“The CFPB’s latest proposal will leave struggling borrowers vulnerable to falling further behind by giving payday and other high-cost lenders the green light to continue trapping them deep in debt,” she said.
The agency made it clear in court documents that its priorities are to protect lenders, not consumers -- contrary to its charter. In those documents, the CFPB argued that payday lenders would suffer "irreparable harm" from the 2017 final payday rule and that it was "in the public interest" to reopen the rulemaking.
"Lenders throughout the market will face substantial decreases in revenue once the Rule’s compliance date takes effect, which will lead many to exit the market," the agency said in a motion.
In November, a federal court suspended the August 2019 compliance date for key parts of the original 2017 rule, since the bureau under then-acting Director Mick Mulvaney had said it planned to propose changes in January.
The CFPB has been overseeing the $38.5 billion payday industry since its inception in 2011. During that time, payday lenders have fought all federal efforts to regulate the industry. Two payday lending trade groups sued the CFPB last year to invalidate the 2017 rule claiming the bureau cherry-picked research to support tough restrictions on lenders.
“The newly proposed payday loan rule is a crucial fix to a regulation that threatened access to credit for millions of Americans who need to cover emergency expenses between paychecks,” Daniel Press, policy analyst at the Competitive Enterprise Institute, said in a statement.
The Financial Service Centers of America (FiSCA) called the possible rollback of regulations a “thoughtful proposal.”
Surveys suggest 10-12 million American consumers get payday loans every year, despite warnings about their triple digit APR cost.
The proposed CFPB change is now open to the public for comment.
“The Bureau will evaluate the comments, weigh the evidence, and then make its decision,” said Kathy Kraninger, bureau director. “In the meantime, I look forward to working with fellow state and federal regulators to enforce the law against bad actors and encourage robust market competition to improve access, quality, and cost of credit for consumers.”
In other words, the Bureau will make a decision to assure consumers have a right to be ripped off to the tune of 391 percent APR or more. How wonderful.