Consumer bureau proposes scrapping borrower safeguards from payday loan rule

Consumer bureau proposes scrapping borrower safeguards from payday loan rule
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The Consumer Financial Protection Bureau (CFPB) on Wednesday proposed striking certain borrower safeguards from a 2017 regulation on short-term, high-interest loans.

The bureau on Wednesday kicked off a proposal to loosen the bureau’s rule on “payday” loans, a measure meant to protect vulnerable consumers from bottomless debt.

The proposed rewrite would eliminate underwriting provisions under the rule meant to ensure recipients of payday loans will have the ability to repay them despite high interest rates.

Senior CFPB officials said Wednesday that the bureau based its justification for the repayment provisions on weak and insufficient evidence.

The officials said that ability-to-repay standards could wipe out close to 75 percent of payday lending storefront and drastically limit consumers’ access to credit.

“If you can’t support the findings, you don’t have the authority,” said the senior official. “We have identified very specific reasons why it’s worth reconsidering the rule.”

The payday rule was a major priority for former CFPB Director Richard CordrayRichard Adams CordrayDemocrats jump into Trump turf war over student loans Supreme Court agrees to hear challenge to consumer agency On The Money: Tax, loan documents for Trump properties reportedly showed inconsistencies | Tensions flare as Dems hammer Trump consumer chief | Critics pounce as Facebook crypto project stumbles MORE (D), who resigned from the agency shortly after the regulation was finalized in October 2017.

It created new restrictions and standards for small-dollar lenders before they offer loans and limited the ways that lenders could acquire what they’re owed.

Under new Republican leadership, the CFPB is seeking to scrap requirements for lenders to confirm that customers could afford to pay off any lump sum loan, plus all fees, within two weeks.

The CFPB will accept comments on their proposal for three months before analyzing feedback and submitting a rewrite of the rule for feedback.

The bureau on Wednesday also sought to delay the deadline to comply with the rule until November 2020 ahead of what could be a lengthy and tense battle to finalize the rewrite.

“The Bureau will evaluate the comments, weigh the evidence, and then make its decision,” said CFPB Director Kathy Kraninger in a statement.

“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.

Consumer protection groups, progressive nonprofits and Democratic lawmakers have fiercely defended the payday rule from Republican and industry attacks.

Supporters of the rule say it’s a sorely needed protection from lenders that trap customers into debt they can’t afford to pay, then collect fees and settlements.

“Eliminating these common sense protections will result in millions of hardworking families trapped in a cycle of debt and poverty,” said Sen. Sherrod BrownSherrod Campbell BrownHillicon Valley: Commerce extends Huawei waiver | Senate Dems unveil privacy bill priorities | House funding measure extends surveillance program | Trump to tour Apple factory | GOP bill would restrict US data going to China Senate Democrats unveil priorities for federal privacy bill On The Money: Trump asks Supreme Court to block Dem subpoena for financial records | Kudlow 'very optimistic' for new NAFTA deal | House passes Ex-Im Bank bill opposed by Trump, McConnell MORE (Ohio), the top Democrat on the Senate Banking Committee. “The CFPB is helping payday lenders rob families of their hard-earned money.”

Rebecca Borné, senior policy counsel at the Center for Responsible Lending, said the CFPB “is siding with the payday loan sharks instead of the American people.”

“We urge Director Kraninger to reconsider, as her current plan will keep families trapped in predatory, unaffordable debt."

Republicans and financial services industry advocates blasted the rule as a drastic abuse of the CFPB’s authority that would choke off crucial credit products for consumers with limited options.

Former Acting CFPB Director Mick MulvaneyJohn (Mick) Michael MulvaneyLive coverage: House holds third day of public impeachment hearings Impeachment witness: Ukraine 'gradually came to understand that they were being asked to do something' Impeachment guide: The 9 witnesses testifying this week MORE announced in January 2018, shortly after he replaced Cordray, that the bureau would propose a drastic rollback of the payday rule. The announcement delighted the rule’s critics and set the stage for a heated battle over its future.

GOP lawmakers unsuccessfully attempted to repeal the payday rule in 2018, and the CFPB is currently facing a lawsuit in the U.S. District Court for the Western District of Texas.

The judge in the case has delayed the deadline to comply with the rule until the CFPB finishes the rewriting process