Financial watchdog to gut most payday lending rules

NEW YORK – The nation’s federal financial watchdog said Wednesday that it plans to abolish most of its critical consumer protections governing payday lenders.

The move is a major win for the payday lending industry, which argued the government’s regulations could kill off a large chunk of its business. It’s also a big loss for consumer groups, who say payday lenders exploit the poor and disadvantaged with loans that have annual interest rates as much as 400 percent.

The cornerstone of the regulations was a requirement that lenders make sure borrowers could afford to repay a payday loan without being stuck in a cycle of debt, a standard known as “ability to repay.” This standard would be eliminated under the new rules. Another part of the rules, which would have limited the number of payday loans a person could roll over, was also eliminated.

Critics of the payday lending industry have argued that without these underwriting standards, the CFPB’s new regulations are effectively toothless. The main criticism of the payday lending industry was that many borrowers would take months to repay a loan that was originally designed only to last a couple of weeks, renewing the loan over and over again.

“This proposal is not a tweak to the existing rule … it’s a complete dismantling of the consumer protections (the bureau) finalized in 2017,” said Alex Horowitz, a researcher with Pew Charitable Trusts, a think tank whose research on the industry was relied on heavily by the bureau when the original rules were unveiled a year and a half ago.

The announcement was the first abolition of regulations under the Consumer Financial Protection Bureau’s new director, Kathy Kraninger, who took over the bureau late last year. Mick Mulvaney, who was appointed by President Donald Trump’s as acting director of the bureau in late 2017, announced a year ago that the bureau was intending to revisit the rules. As a Congressman from South Carolina, Mulvaney received tens of thousands of dollars in political donations from the payday lending industry, raising concerns he was too connected to the industry to appropriately regulate it.

The Community Financial Services Association of America, a payday lending group, is holding its annual conference in March at Trump’s Doral golf club in Miami. It held its conference there last year, too. Government watchdog groups have criticized the use of Trump hotels and resorts by businesses and lobbying groups as legal bribery, a way to influence regulation and policy by giving money to the president.