NEW YORK (AP) — The Consumer Financial Protection Bureau will revisit a crucial part of its year-old payday lending industry regulations, the agency announced Friday, a move that will likely make it more difficult for the bureau to protect consumers from potential abuses, if changed.
The CFPB finalized rules last year that would, among other changes, force payday lenders to take into account the ability of their customers to repay their loans in a timely manner, in an effort to stop a harmful industry practice where borrowers renew their loans multiple times, getting stuck in a cycle of debt. Those "ability to repay" regulations will now be revisited in January 2019, the bureau said.
The bureau took more than five years to research, propose, revise and finalize the current regulations. The payday lending rules were the last regulations put into place by President Obama's CFPB Director Richard Cordray before he resigned late last year to run for governor of Ohio.
The cornerstone of the rules enacted last year would have required that lenders determine, before approving a loan, whether a borrower can afford to repay it in full with interest within 30 days. The rules would have also capped the number of loans a person could take out in a certain period of time.
But since President Trump appointed Acting Director Mick Mulvaney, the bureau has taken a decidedly more pro-industry direction than under his predecessor. Mulvaney has proposed reviewing or revisiting substantially all of the regulations put into place during Cordray's tenure.
The bureau is not proposing revisiting all of the payday lending regulations, but the crux is the ability-to-repay rules. Without them, the regulations would only govern less impactful issues like stopping payday lenders from attempting to debit customer's account too many times, and making sure payday lending offices are registered with authorities. Most of these rules would not have gone into effect until August 2019.
The CFPB's ability-to-repay rules are complex, spanning hundreds of pages, and govern only short-term loans that many payday lenders rely on. The payday lending industry was adamant in their opposition, and even made an unsuccessful push for the Republican-controlled Congress to use their authority under the Congressional Review Act to veto the rules.
The industry argues that the CFPB's rules are too complex and would lead to the closing of hundreds of payday lending stores and a substantial decline in lending volumes.
It's an argument the CFPB actually agreed with since the industry derives most of its profits from repeat borrowers: those who take out a loan but struggle to repay it back in full and repeatedly renew the loan. When the rules were finalized last year, the bureau estimated that loan volume in the payday lending industry could fall by roughly two-thirds, with most of the decline coming from repeat loans no longer being renewed. The industry, which operates more than 16,000 stores in 35 states, would likely see thousands of payday lending store closures nationwide.
"Payday lenders don't want to take a borrower's ability to repay a loan into consideration because they make billions of dollars each year trapping these consumers in a nearly impossible to escape debt cycle where the only way borrowers can pay back their loan is by taking out a new loan, over and over again," said Karl Frisch, director of consumer group Allied Progress, who has been a vocal critic of Mulvaney and his tenure at the CFPB.