WASHINGTON–While the credit union trade groups said they welcome a decision by the CFPB to delay a rule requiring payday lenders to prove borrowers’ ability to
repay, two consumer groups are objecting to the decision.
As CUToday.info reported here, the CFPB is proposing to delay by 15 months enforcement of a significant piece of its rule on small-dollar, short term loans that requires lenders to determine whether borrowers will be able to repay the loans. Both CUNA and NAFCU said they welcomed the announcement, with both expressing support for the concept and requesting credit unions be exempted.
But the CFPB announcement isn’t getting the same response from everyone.
‘Triple Digit Interest Loan Traps’
“While not perfect, the CFPB’s final payday lending rule was a giant step toward helping struggling families avoid debt traps,” said Christopher Peterson, director of financial services with the Consumer Federation of America and the John J. Flynn Endowed Professor of Law at the University of Utah. “The regulation would have simply required that payday lenders consider whether loan applicants could afford their loan before extending credit.”
In the same statement, the CFA added, “Less than a day after calling for compromise and unity in his State of the Union address, President Trump’s consumer protection agency is proposing to eliminate rules, arrived at by compromise, which would protect struggling consumers from triple-digit interest loan traps.”
The CFA said surveys have shown a super-majority of Americans, both Republicans and Democrats, support an interest rate limit of 36%.
“Instead, of siding with the public, or even the CFPB’s compromise rules, President Trump’s consumer protection agency is working hand-in-hand with the usurious money changers that trap consumers in an endless, and devastating, debt cycle,” said the CFA.
Separately, the Pew Charitable Trusts said the CFPB’s plan to rescind core provisions of its payday loan rule would leave millions of Americans at risk of becoming trapped in a cycle of debt.
“The rule, finalized in 2017 and previously scheduled to take effect this August, was based on years of extensive research and was designed to take a balanced approach by curbing harmful lending practices while keeping credit available to consumers,” Pew said. “(The) proposal would eliminate the rule’s ability-to-repay provision—the central consumer protection measure that curbs unaffordable loan terms.”
The Pew Charitable Trusts added the sole piece of the 2017 rule remaining would be a payment measure that would be “largely inconsequential” without the rule’s core affordability protections.
“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,” said Alex Horowitz, senior research officer with Pew's consumer finance project. “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%.
“This proposal is not a tweak to the existing rule; instead, it’s a complete dismantling of the consumer protections finalized in 2017,” Horowitz continued. “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…The Bureau should withdraw this harmful proposal.”