As would be expected, critics are lining up to take their shots against the Consumer Financial Protection Bureau for attempting to scale back its rules for payday lenders.
On Feb. 6, the agency proposed rescinding sections of a 2017 rule targeting small-dollar lending, including payday and vehicle title loans.
In October 2017, facing down Republican opposition and industry petitions and protests, the CFPB—under the leadership of former director Richard Cordray—finalized a long-gestating rule “aimed at stopping payday debt traps by requiring lenders to determine upfront whether people can afford to repay their loans.”
The consumer protections promulgated in 2017 covered loans that require consumers to repay all or most of the debt at once, including payday loans, auto title loans, deposit advance products, and longer-term loans with balloon payments.
Under the CFPB’s rule, lenders must conduct a “full-payment test” to determine upfront that borrowers can afford to repay their loans without reborrowing. It also curtailed lenders’ “repeated attempts to debit payments from a borrower’s bank account, a practice that racks up fees and can lead to account closure.”
The Pew Charitable Trusts was among the organizations blasting the CFPB’s decision. It warned that the plan to rescind core provisions of the payday loan rule “would leave millions of Americans at risk of becoming trapped in a cycle of debt.”
“This proposal to remove critical safeguards would let payday lenders rely on their ability to withdraw payments from borrowers’ checking accounts rather than setting payments that they know borrowers can afford,” it said in a statement. “Eliminating these protections would be a grave error and would leave the 12 million Americans who use payday loans every year exposed to unaffordable payments at interest rates that average nearly 400 percent.
“This proposal is not a tweak to the existing rule; instead, it’s a complete dismantling of the consumer protections finalized in 2017,” it added. “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… Both borrowers and responsible lenders would suffer if the CFPB were to finalize today’s proposal to eliminate its well-balanced consumer protections and deregulate 400 percent interest loans issued to millions of struggling Americans. The Bureau should withdraw this harmful proposal.”
Politicians with a progressive inclination also circled their wagons.
“The CFPB is supposed to protect consumers, not throw them under the bus,” tweeted California Governor Gavin Newsom. “So, why in the world are we making it EASIER for greedy payday lenders to prey on vulnerable Americans? It’s incomprehensible.”
“Eliminating these common-sense protections will result in millions of hardworking families trapped in a cycle of debt and poverty,” said Sen. Sherrod Brown (D-Ohio). “The CFPB is helping payday lenders rob families of their hard-earned money.”
Sen. Elizabeth Warren (D-Mass.), in a letter to new CFPB Director Kathy Kraninger, demanded that she immediately rescind the proposed new rule “and restore the CFPB's statutory mission.”
“This new rule eliminates crucial protections for borrowers and makes it clear that the CFPB is not doing its job to protect consumers,” Warren wrote. “Instead, it is giving the payday lending industry free rein to squeeze consumers and catch them in cycles of debt.”
“[The rule] makes a mockery of the CFPB's statutory mission of protecting consumers. It should be withdrawn immediately,” she added.
The rule reconsideration also triggered a rebuke from Rep. Maxine Waters (D-Calif.), chair of the House Financial Services Committee.
“Under the leadership of former Director Richard Cordray, the Consumer Bureau took an important step to protect consumers from predatory debt traps, but his successors seem to be working hard to assist payday loan sharks and repeal important consumer protections,” she said in a statement. “This proposal essentially sends a message to predatory payday lenders that they may continue to harm vulnerable communities without penalty. I urge 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.”
On a semi-related note, Rep. Al Green (D-Texas) wrote to Kraninger to request internal and external documentation relating to recent settlements that did not include restitution for affected consumers. In a settlement announced earlier this month with the multi-state payday lender Cash Tyme, the CFPB fined the firm $100,000 for “overcharges and harassing collection calls,” but demanded no monetary award for aggrieved customers.
“The CFPB has recently announced several settlements against entities for engaging in unlawful practices without requiring the payment of redress to consumers harmed by the illegal conduct,” the lawmakers wrote. “This stands in stark contrast to the Consumer Bureau’s practice under the leadership of former Director Cordray.”
During Cordray’s tenure, the Bureau recovered nearly $12 billion in relief for harmed consumers during its first six years.
Section 1055 of the Consumer Financial Protection Act of 2010 explicitly authorizes the Consumer Bureau to obtain relief for consumers, including the refund of money, restitution, or the payment of damages or other monetary relief.
The legislators demanded that the Bureau turn over the requested documents by March 5.