The Consumer Financial Protection Bureau officially repealed a plan to impose new limits on payday loans on Tuesday, giving the industry a huge victory by getting rid of stricter rules it had lobbied for for years.
The proposed rules would be the first major federal regulation for an industry that lends $ 30 billion annually in high-interest, guaranteed loans options, often to troubled borrowers. These loans can leave borrowers caught in debt cycles, with fees being charged every few weeks to replenish loans they can’t afford.
The change would have limited the number of loans borrowers could take out in a row and asked lenders to verify that they had the funds to repay their debts. According to estimates by the consumer advice center, the regulations would have saved consumers – and cost providers. about $ 7 billion a year for fees.
The lenders fought hard against the rules that one of the office’s signature efforts while the Obama administration argued that the changes would harm consumers by denying them access to emergency credit.
That argument caught on with the agency as it took a more business-friendly approach under President Trump.
Mick Mulvaney, then Mr Trump’s head of budget, became the agency’s deputy director in 2017 and the entry into force of the new restrictions is delayed. Kathleen Kraninger, the current director of the office, has initiated the formal process of repeal two months after taking over.
Trump’s agents were so determined to abolish the rule that they manipulated the agency’s research process to steer it towards their predetermined outcome, a clerk alleged in an internal memo verified by the New York Times. The disclosure of the memo caused the Democrats in Congress to Call to federal guards to investigate.
Ms. Kraninger defended the decision on Tuesday, saying the proposed restrictions were based on insufficient evidence to justify the damage it would have caused lenders.
Although leaving smaller provisions, including one that prevented lenders from repeatedly withdrawing funds from a borrower’s overdrawn bank account, Ms. Kraninger said removing the remainder of the rule would “ensure consumers have access to credit from a competitive market” .
The Community Financial Services Association of America, an industry trade group that has campaigned massively against the planned restrictionsMs. Kraninger said the decision would “benefit millions of American consumers.”
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June 11, 2021 at 1:46 p.m. ET
Critics, including more than a dozen consumer protection groups, said the agency gave financial firms priority over the people it was supposed to protect.
“In the midst of an economic and health crisis, the CFPB director decided to spend considerable time and energy removing protections that would have saved borrowers billions in fees,” said Linda Jun, senior policy counsel for Americans for Financial Reform, an advocacy group for consumers.
The Pew Charitable Trusts, long pushing to curb high-interest credit, called the decision “a grave mistake” that exposes millions of Americans to unaffordable triple-digit interest payments.
Ohio Senator Sherrod Brown, the senior Democrat on the banking committee, said the removal of the rule rewarded the industry’s intense lobbying efforts to stave off regulation.
Payday lenders have donated $ 16 million to Congressional candidates, mostly Republicans, since 2010 the center for responsive politics. The Community Financial Services Association of America held its 2018 and 2019 annual conferences at Trump National Doral Golf Club.
The bureau “gave payday lenders exactly what they paid for by voiding a rule that would have protected American families from predatory loans,” Brown said.
The deleted rules could be revived in some form if former Vice President Joseph R. Biden Jr. wins the presidency in November. A Supreme Court ruling last week authorized the president to dismiss the director of the office at will.