The Consumer Financial Protection Bureau officially canceled a plan on Tuesday to impose new limits on payday loans, handing the industry a major victory by scrapping tougher rules it has spent years lobbying for. to spill.
The proposed rules would have been the first major federal regulations on an industry that earns $30 billion a year in short-term, high-interest loans, often to already struggling borrowers. These loans can leave borrowers trapped in cycles of debt, incurring fees every few weeks to replenish loans they cannot afford to repay.
The change would have limited the number of loans borrowers could take out in a row and required lenders to check that they could afford to repay their debt. According to estimates from the Office of Consumer Affairs, the rules would have saved consumers – and cost lenders – some $7 billion a year in fees.
Lenders fought hard against the rules, which were one of the bureau’s flagship efforts under the Obama administration, arguing the changes would hurt consumers by denying them access to emergency credit.
That argument resonated with the agency as it took a more business-friendly approach under President Trump.
Mick Mulvaney, then Trump’s budget chief, became the agency’s acting director in 2017 and delayed the new restrictions taking effect. Kathleen Kraninger, the current director of the office, began the formal process of canceling them two months after taking office.
Trump appointees were so determined to eliminate the rule that they manipulated the agency’s search process to steer it toward their predetermined outcome, a bureau employee said in an internal memo reviewed by The New York Times. . The disclosure of the memo prompted congressional Democrats to call in federal watchdogs to investigate.
Ms Kraninger defended the decision on Tuesday, saying the proposed restrictions were based on insufficient evidence to justify the harm it would have caused lenders.
Although she left minor provisions in place, including one preventing lenders from trying to repeatedly withdraw funds from a borrower’s overdrawn bank account, Ms Kraninger said removing the rest of the rule “would guarantee consumers access to credit in a competitive market”.
The Community Financial Services Association of America, an industry trade group that has lobbied against the planned restrictions, said Ms Kraninger’s decision would “benefit millions of American consumers”.
Critics, including more than a dozen consumer groups, said the agency prioritized financial companies over the people it was supposed to protect.
“In the midst of an economic and public health crisis, the CFPB director chose to spend a great deal of time and energy undoing protection that would have saved borrowers billions in fees,” Linda Jun said. , Senior Policy Advisor for Americans for Financial. Reform, a consumer advocacy group.
The Pew Charitable Trusts, which has long called for restrictions on high-interest loans, called the decision a “serious mistake” that exposes millions of Americans to unaffordable payments with triple-digit interest rates. .
Sen. Sherrod Brown of Ohio, the ranking Democrat on the banking committee, said the elimination of the rule rewarded the industry’s intense lobbying efforts to push back on regulation.
Payday lenders have paid out $16 million to congressional candidates, mostly Republicans, since 2010, according to the Center for Responsive Policy. The Community Financial Services Association of America held its 2018 and 2019 annual conferences at the Trump National Doral Golf Club.
The bureau “gave payday lenders exactly what they paid for by removing a rule that would have protected American families from predatory lending,” Brown said.
The scrapped rules could be reinstated, in one form or another, if former Vice President Joseph R. Biden Jr. wins the presidency in November. A Supreme Court ruling last week granted the president the power to fire the office manager at will.