Restrictions on payday lenders should be lifted


NEW YORK – The country’s federal financial watchdog said on Wednesday it plans to scrap most of its regulations governing payday lenders.

The move is seen as a victory for the payday lending industry, which has argued that government regulations could kill much of its business. But consumer groups say payday lenders exploit the poor and disadvantaged with loans with annual interest rates as high as 400%.

The cornerstone of the regulation was the requirement for lenders to ensure that borrowers could afford to repay payday loans without being stuck in a cycle of indebtedness, a standard known as ‘repayment capacity’. “. This standard, which is expected to come into effect in August, would be removed under the new rules. Another part of the rules, which would have limited the number of payday loans a person could renew, was also removed.

Critics of the payday loan industry have argued that without these underwriting standards, the new Consumer Financial Protection Bureau regulations are effectively toothless. The main criticism of the payday lending industry was that many borrowers would take months to pay off a loan that was originally designed to last only a few weeks, renewing the loan over and over again.

“This proposal is not an adjustment to the existing rule … it is a complete dismantling of consumer protections [the bureau] finalized in 2017, ”said Alex Horowitz, researcher at Pew Charitable Trusts, a think tank whose office relied heavily on industry research when the original rules were unveiled a year and a half ago.

Payday loans are allowed in California and 32 other states, with the rest banning them. It is estimated that 12 million Americans take out payday loans each year from websites and approximately 16,000 stores.

The overhaul of the payday loan rule is “disturbing, but not surprising,” said Linda Jun, senior policy adviser at Americans for Financial Reform, a consumer advocacy group. The “industry thrives by being able to do whatever it wants. It’s their business model, to have zero standards.

The announcement was the first regulatory abolition under the new director of the Consumer Financial Protection Bureau, Kathy Kraninger, who took over the office late last year. Mick Mulvaney, who was appointed by President Donald Trump as acting director of the office in late 2017, announced a year ago that the office intended to review the rules. As a South Carolina congressman, Mulvaney received tens of thousands of dollars in political donations from the payday loan industry, raising concerns that he is too tied to the industry to regulate it appropriately.

The Community Financial Services Association of America, a payday loan group, holds its annual conference in March at Trump’s Doral Golf Club in Miami. He also held his conference there last year. Government watch groups have criticized the use of Trump hotels and resorts by businesses and lobby groups as a means of influencing regulation and policy by giving money to the president.

A spokesperson for the Community Financial Services Association of America did not immediately respond to a request for comment.

Under Barack Obama’s administration, the Office of Consumer Protection spent nearly five years working on a process to nationalize the regulation of the payday lending industry, which is primarily regulated at the state level. Arkansas law caps the annual interest rate on loans at 17% for all lenders except out-of-state based banks.

The office began the regulatory streamlining process in 2012, and its finalized rules were completed in late 2017. This was one of the last major regulatory texts completed under Richard Cordray, the office’s first permanent director, before that he does not leave the office.

“I think this is a bad development for consumers,” Cordray said Wednesday. “We looked at this industry carefully and there was a common problem of borrowers trapped in long-term debt. We had come up with what I saw as a modest proposal. The change is really disappointing and rushed.”

Wednesday’s announcement is one of the most important steps the Trump administration has taken to remake the office. Republicans and business leaders have complained for years that the office is too aggressive and often pushes legal boundaries to go after financial companies.

Under the Trump administration, the office relaxed its approach. He dropped several lawsuits against payday lenders and deprived the enforcement powers of his fair loan office. Rather than pursuing mind-boggling penalties, the bureau must balance the needs of consumers and the financial companies it regulates, agency executives say.

The bureau proposed keeping part of the payday lending regulation: a ban on the industry from making multiple debits to a borrower’s bank account, which consumer advocates say has caused hardship for consumers. borrowers due to overdraft fees. In a statement, the Community Financial Services Association of America said it felt the repeal of the office did not go far enough and that it also wished the debit regulations were eliminated.

The proposed new rules are subject to a 90-day public comment period. The proposed changes are subject to legal challenges, as the office deviates dramatically from its previous position, something federal regulators are generally not allowed to do under the law.

Information for this article was provided by Ken Sweet and Bernard Condon of The Associated Press; Renae Merle of the Washington Post; and Jim Puzzanghera of the Los Angeles Times.

A Section on 07/02/2019

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