Trump administration to roll back Obamaera payday loan protections
The Trump administration is planning to abolish key parts of an Obamaera rule that was aimed at protecting vulnerable borrowers from amassing untenable debts from payday loans.
The Consumer Financial Protection Bureau (CFPB) is proposing to scrap requirements for lenders to ensure borrowers can cover basic living expenses before issuing such payday loans. Gutting the rule, which has not yet come into force, would “increase consumer access to credit”, the agency said.
Payday loans typically work by offering small loans to borrowers who are then obliged to repay them with their next pay installment. Interest rates on such loans can be steep, at about 400% or more, with the bureau finding that the vast majority of loans are rolled over into another loan within two weeks.
This mounting debt has caused severe financial hardship for lowincome workers, with the Obama administration vowing to curb the practice, which it described as predatory lending.
But the bureau under the Trump administration has taken a different tack, arguing that the rule is on shaky legal ground and could clog up credit markets.
Under the new proposal, lenders would not be obligated to ensure borrowers can repay loans with enough leftover cash to live on. A limit preventing lenders from making more than three short-term loans without a 30-day “cooling off” period would also be dismantled.
Advocates for borrowers said the move was a result of intense lobbying and campaign donations by the payday lending industry.
“The CFPB is supposed to be protecting consumers from this kind of debt trap, not making it easier for them to fall in,” said Jeremy Funk, spokesman for corporate accountability group Allied Progress.
“Predatory lenders are sure getting an incredible return on their investment in the Trump administration, not unlike one of their abusive 400% interest loans,” he added.
The bureau is proposing to delay the August rollout of the rule until November 2020, with a 30-day comment period opened to the public. Kathy Kraninger, director of the bureau, said it will “evaluate the comments, weigh the evidence and then make its decision”.