House Committee to Weigh Legislation to Tighten Payday Lending
One piece of the legislation would create an Office for Under-Banked, Un-Banked and Underserved Consumers in the CFPB.
In the face of the CFPB’s plan to loosen rules governing so-called payday loans, the House Financial Services Committee plans to explore legislation that would tighten the regulations, according to a memo produced by the Democratic staff of the committee.
The Financial Services Committee is holding a hearing on payday lending Tuesday afternoon.
“Many payday and car-title loans not only undermine wealth-building opportunities for vulnerable communities, but also force people that are already struggling financially and underbanked into worse circumstances, including losing their bank accounts, vehicles, or even bankruptcy,” the Democratic memo states.
In 2017, the CFPB, under Obama Administration appointee Richard Cordray, the bureau issued strict rules governing payday loans. When President Trump took office, administration officials said they would loosen the regulations.
New agency Director Kathy Kraninger has proposed eliminating the requirement that short-term lenders establish that a borrower has the ability to repay a loan before completing the transaction.
Democrats have attacked that plan and the committee’s Democratic staff highlighted three proposals in the memo:
- A discussion draft of legislation introduced in previous Congresses. The plan would impose a 36% usury cap for all open-end and closed-end consumer credit transactions, including mortgages, car loans, overdraft loans, car title loans and payday loans. The bill would permit initial application fees and the recovery of lender costs. The proposal would not pre-empt stricter state laws. The Military Lending Act imposes a 36% cap on loans to active-duty servicemembers and their families.
- H.R. 1285, introduced by Financial Services Committee member Rep. David Scott (D-Ga.). The legislation would create an Office for Under-Banked, Un-Banked and Underserved Consumers in the CFPB. The office would establish strategies for improving credit access to people who might take out a payday loan.
- A plan by House Consumer Protection and Financial Institutions Subcommittee Chairman Gregory Meeks (D-N.Y.) that would provide $10 million to fund Dodd-Frank’s Small Dollar Loan Program. That program is administered by the Community Development Financial Institutions Program. The program, which never has been funded, would provide assistance to create loss reserves to support small-dollar lending among CDFIs.