Federal payday lending rule could be on chopping block
Consumer advocates and business groups are battling over the possibility the Trump administration will eliminate a rule aimed at ensuring borrowers who take out high-interest loans between paychecks can afford to pay them back.
Consumer groups say the so-called payday lending rule finalized last year by the U.S. Consumer Financial Protection Bureau should be fully implemented as soon as possible.
The regulation “targets the most abusive short-term lending practices” while “paving the way for more responsible lenders to emerge with safer alternatives,” Suzanne Martindale, senior attorney for Consumers Union, the policy arm of Consumer Reports magazine, said in a statement.
However, Dennis Shaul, CEO of the payday loan industry group called the Community Financial Services Association of America, said the consumer bureau rule fails “to demonstrate consumer harm from small-dollar loans.”
At issue is a 2017 rule that would require payday lenders to determine, before granting a loan, whether a borrower could afford to make full repayment with interest within 30 days. The loans are often due within two weeks and include annual interest rates of roughly 390%, according to a 2014 report by the consumer bureau.
The escalating debate comes as the federal agency that acts as a watchdog, whose leadership shifted from an Obama administration appointee to a Trump administration pick late last year, said this week that it would take a new look at the rule. Although most of the rule’s provisions don’t take effect until Aug. 19, 2019, the new rule-making opens the door for a process that could revise or repeal the safeguards.
Separately, proposed congressional action could nullify the payday loan rule without any action by the consumer bureau. Mick Mulvaney, the Trump White House budget director tapped to head the federal watchdog on an interim ba- sis, has said he supports that action.
The report, produced when the federal watchdog was headed by Obama appointee Richard Cordray, found that roughly 62% of all payday loans go to consumers who repeatedly extend repayments. Some end up owing more in fees than the amount they initially borrowed, the report said. Critics of the payday lending rule argue it would victimize the working poor who can’t pay for urgent financial expenses, such as a medical emergency.
In a report issued last week, the libertarian Competitive Enterprise Institute cited a story about a single mother from Oakland who took out a small-dollar loan to pay for an urgent car repair. Without that money, she likely faced a choice between losing her job or losing her apartment, the report said. “Taking out such a high-cost loan may not be ideal, but many consumers have no better options,” the CEI report said.
The Consumer Bankers Association, a trade group focused on retail banking, added a call for the consumer bureau to examine the use of bank-offered smalldollar lending.
In contrast, Allied Progress, a consumer group backed in part by the New Venture Fund, a public charity focused on conservation, education and other issues, alleges Mulvaney is biased because he “took thousands of dollars from the payday industry” in the form of campaign contributions when he served as a Republican U.S. House member from South Carolina.
Mulvaney said in December the contributions posed no conflict of interest.