Keep eye on lenders
The acting director of the Consumer Financial Protection Bureau, Mick Mulvaney, appears to have identified one of the first services he will free from what he has called “a bureaucracy that has gone wrong”—payday lenders.
That’s too bad, because the CFPB was making progress in curbing the industry’s excesses.
Payday lending can be a useful service. A two-week loan of $500 at 400 percent annualized interest can make sense if, say, you need to fix your truck to get to work. Unfortunately, the industry has long made much of its money by trapping customers in a series of consecutive loans that can end up costing many times the amount borrowed. A patchwork of state laws has done little to combat such practices.
Enter the CFPB, which last year issued the first federal rule governing payday lending. This limits how many loans can be made in a row, and requires that borrowers be allowed to pay over time, rather than facing the choice of paying in full or extending at exorbitant cost. It also paves the way for traditional banks and credit unions to offer less-expensive alternatives.
The CFPB’s approach was hardly heavy-handed. On the contrary, it struck a careful balance between mitigating damage and keeping short-term credit available. After an initial proposal attracted criticism, the bureau made significant changes. And it gave the industry nearly two years to comply.
Nonetheless, just as lenders were preparing to adapt, Mulvaney is changing course. On the day the new payday-lending rules went into effect, the bureau announced that it plans to reconsider them. And in a strong signal of its intentions, it moved to drop a lawsuit against four lenders that had circumvented state laws by associating themselves with Native American tribes—a corner of the online-lending branch of the industry, which has been responsible for some of the worst abuses.
In some areas—such as mortgage lending by smaller banks—the CFPB’s rules could be modified to everyone’s benefit. But making America safe for predatory lenders should not be part of Mulvaney’s mission.