Financial watchdog to dump its payday loan rules

NEW YORK — The nation’s federal financial watchdog said Wednesday it plans to scrap most of its key consumer protections governing payday lenders.

The move is a major victory for the payday loan industry, which has argued that government regulations could kill much of its business. It’s also a big loss for consumer groups, who say payday lenders exploit the poor and disadvantaged with loans with annual interest rates of up to 400%.

The cornerstone of the regulations was a requirement that lenders ensure borrowers could afford to repay a payday loan without being stuck in a cycle of debt, a standard known as “repayment capacity.” . This standard would be eliminated under the new rules. Another part of the rules, which would have limited the number of payday loans a person could carry over, was also eliminated.

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

“This proposal is not a change to the existing rule…it is a complete rollback of consumer protections (the bureau) finalized in 2017,” said Alex Horowitz, a researcher at Pew Charitable Trusts, a think tank whose industry research was grounded. heavily by the bureau when the original rules were unveiled a year and a half ago.

The announcement was the first scrapping of regulations under new CFPB director Kathy Kraninger, who took over the office late last year. Mick Mulvaney, who was appointed by President Donald Trump as the bureau’s acting director in late 2017, announced a year ago that the bureau intended to review the rules. As a congressman from South Carolina, Mulvaney received tens of thousands of dollars in political donations from the payday loan industry, raising concerns that he was too tied to the industry to regulate it from appropriate manner.

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 watchdog groups have criticized the use of Trump hotels and resorts by corporations and lobby groups as legal bribery, a way to influence regulation and policy by giving money to the president.

The ACSA did not respond to a request for comment from The Associated Press on this criticism, but sent a statement saying it was “disappointed” with some regulations left intact and that its members were eager to return to Doral. This year.

“The venue is popular with our members and meets our needs,” said CSFA CEO Dennis Shaul.

Under the Obama administration, the CFPB spent nearly five years working on a process to finally nationalize regulation of the payday loan industry, which is primarily regulated at the state level. The bureau started the process in 2012 and its finalized rules were finalized in late 2017. They were the last major regulatory texts drawn up under Richard Cordray, the bureau’s first permanent director, before he left the bureau.

“I think this is a bad development for consumers,” Cordray said. “We looked at this industry carefully and there was a common problem of borrowers being trapped in long-term debt. We had worked out what I considered to be a modest proposal. The change is really disappointing and hasty.

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The CFPB has proposed keeping part of the payday loan regulations: a ban on the industry making multiple debits from a borrower’s bank account, which consumer advocates say has caused hardship to borrowers due to overdraft fees. In a statement, the CFSA said the repeal of the CFPB did not go far enough and also wished the debit regulations had been removed.

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

AP Business Writer Bernard Condon contributed to this report from New York.

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