Dems, Consumer Groups Blast New CFPB-Proposed Payday Rule Changes

The reaction was swift and angry Wednesday, as consumer groups and congressional Democrats accused the CFPB of abandoning consumers in its plan to overhaul agency rules governing payday lending.

“This proposal essentially sends a message to predatory payday lenders that they may continue to harm vulnerable communities without penalty,” House Financial Services Chairwoman Maxine Waters (D-Calif.) said. “I urge [CFPB Director Kathy Kraninger] to rescind this proposal and work on implementing a comprehensive federal framework — including strong consumer safeguards, supervision, and robust enforcement — to protect consumers from the cycle of debt.”

Credit union trade groups, on the other hand, said they supported the new proposal, adding that it could allow more people to obtain loans they badly need.

And the Consumer Financial Services Association, the group representing payday lenders, said they were pleased with the proposal, but said it does not go far enough in rescinding the old payday rule.

The CFPB announced Tuesday that it was seeking comment on a plan to rescind a requirement that short-term, small-dollar lenders check to see if borrowers are likely to be able to repay their loans before making those loans.

The strict CFPB rules were issued when former agency Director Richard Cordray, an Obama Administration nominee, was director. At the time, Republicans and groups representing financial institutions said that the rules would restrict credit for people who need the loans.

When he took over the agency, former CFPB Acting Director Mick Mulvaney said the agency would revisit the rules.

The Consumer Financial Services Association of America, has sued the CFPB, contending that the rules are arbitrary and capricious. Mulvaney agreed. A federal judge has placed a stay on that lawsuit as the agency re-examines the rules.

Kraninger’s agency has proposed rescinding the ability-to-pay requirements, saying that there was not enough evidence that they were needed.

Supporters of the Cordray rule disagreed.

“Eliminating these common-sense protections will result in millions of hardworking families trapped in a cycle of debt and poverty,” Senate Banking Committee ranking Democrat Sherrod Brown of Ohio said. “The CFPB is helping payday lenders rob families of their hard-earned money.”

Sen. Doug Jones (D-Ala.) said there was a tremendous amount of research and public comment on the Cordray rules.

“Given that there were more than five years of research and more than one million public comments on the original rule, I look forward to seeing if there is any new evidence the CFPB has found that can justify this reversal,” he said.

The proposal would rely on a lender’s ability to withdraw money from a borrower’s checking account rather than that person’s ability to repay the loan, said Alex Horowitz, senior research officer with the Pew Charitable Trust’s consumer finance project.

“This proposal is not a tweak to the existing rule; instead, it’s a complete dismantling of the consumer protections finalized in 2017,” Horowitz said. “The rule was working. Lenders were making changes even before it formally took effect, safer credit was already starting to flow, and harmful practices were beginning to fade.”

The Cordray rules already were a compromise, said Mike Litt, U.S. Public Interest Group’s consumer campaign director. He said that states are enacting laws to set interest rate caps on payday loans.

“The CFPB is prohibited from setting interest rate caps,” he said. “So, under previous Director Richard Cordray, it did the next best thing by simply requiring lenders to check if a customer can repay the high interest rates.

But Dennis Shaul, CEO of the Community Financial Services Association of America, said the CFPB plan would retain parts of the rule that do not adequately address concerns made in more than one million comments made when Cordray’s rule was issued.

“Continuing to target legal and licensed state-regulated lenders through regulatory restrictions on their ability to offer short term credit options will push consumers into dangerous, harmful alternatives,” he said, adding, “During the previous comment period, our customers spoke out in record numbers against the rule and the negative impact it will have on their ability to access credit.”