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Research and Statistics

CFPB rollback of payday loan protection draws criticism


Consumer advocates decry lack of enforcement actions and reopening of payday loan regulation by consumer watchdog agency led by Trump appointee.

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Borrower beware: Federal protections from high-cost loans are being rolled back as part of a broad deregulation push, prompting an outcry from consumer advocates and some policymakers.

“This is a modern-day form of slavery,” U.S. Rep. Don Beyer (D-Va.) said during an anti-payday loan demonstration and news conference March 29 in Washington, D.C. “Their intent is to trap individuals and families into a cycle of debt from which they can never recover.”

Advocates of short-term, small-dollar loans say the quick credit is a boon for people who face a temporary financial crunch. Auto-title loans and some term loans are forms of high-cost, short-term credit, as well as payday loans.

But research by the Consumer Financial Protection Bureau found that nearly half of payday borrowers go back again and again to reborrow the same amount – at rates above 300 percent APR. These repeat borrowers rack up high fees that generate the industry’s biggest source of business.

The demonstration, held in front of the CFPB building, focused on moves by the agency, now led by President Trump’s appointee, John M. “Mick” Mulvaney, to retreat from protections against abusive loans. The protections are also under attack in Congress.

Washington’s actions to reverse payday-loan protections

Here’s a rundown of what’s happening on the payday lending front:

CFPB is dropping enforcement actions – begun under the Obama administration – against high-cost lenders.

  • In the latest example, Reuters reported that its case against Kansas-based National Credit Adjusters, a debt collector for online tribal lenders, was scrapped.
  • That was one of four dropped investigations that would have paid $60 million in refunds to consumers, the report said.
  • The CFPB had previously dropped a lawsuit it had filed against tribal lender Golden Valley Lending, which has rates as high as 950 percent.

The consumer bureau has announced it is reconsidering a regulation on small-dollar loans, published during the Obama administration.

  • The rule aims to limit reborrowing of high-cost loans by requiring a “cooling-off period” after three back-to-back loans, among other measures.

Sen. Lindsey Graham, (R-S.C.) introduced a resolutionMarch 22 under the Congressional Review Act to repeal the payday loan rule.

  • The measure needs 50 percent-plus-one approval in both chambers to pass.
  • The Congressional Review Act imposes a deadline of 60 legislative days for passage, meaning days when Congress is in session.
  • It is estimated the deadline will fall sometime in late May.

A bill passed by the House Feb. 14 would open a loophole to high-cost loans in the 19 states where they’re now prohibited.

  • H.R. 3299, “Protecting Consumers Access to Credit Act of 2017,” would allow nonbank lenders to ignore state interest-rate caps for loans that they acquire from banks.
  • That would create a loophole for high-interest lenders to use a “rent-a-bank” strategy to bypass state restrictions, consumer advocates warn.
  • The measure is one of several that Republicans in the House seek to include in a broader financial deregulation measure that has passed the Senate.

CFPB under Trump appointee: Four months in, zero enforcement actions

Thursday’s protest came as the CFPB reached the four-month mark without announcing an enforcement action, its longest-ever drought since it began cracking down on anti-consumer practices.

Since the White House named Mulvaney as acting director in November 2017, crackdowns that previously delivered millions of dollars in refunds to harmed consumers have halted.

Mulvaney has said he is changing the agency’s stance, focusing on removing excessive rules and pulling back its overly aggressive enforcement policies.

In a bind? Consider these payday loan alternatives instead

  • Advance on pay.
    Some employers will provide a one-time, 0-interest advance on your next paycheck to meet unexpected expenses. Check the personnel department or financial wellness program provider.
  • Special bank and credit union programs.
    Community banks and credit unions may have unadvertised payday loan alternatives. For example, a credit union small-dollar loan program offers loans under $1,000 with rates capped at 28 percent, no rollovers, and application fees of $20 or less.
  • Community assistance.
    If the emergency bill has to do with keeping the lights on, check with local social service agencies or the utility for programs that at least spread payments over a longer time period, and may subsidize the total cost. Community clinics may have free or sliding-fee scales if you can’t pay for medical treatment upfront.

  • For more tips see Payday loan alternatives more important than ever.

CFPB’s deregulatory actions draw criticism from consumer advocates

Now, however, the agency’s deregulatory stance is drawing increasing criticism from consumer advocates and their allies in Congress.

Sen. Dick Durbin, (D-Ill.) sent an open letter March 27 to the CFPB urging support for the already published payday lending rule. Signed by 42 senators, the letter states that the CFPB developed the payday lending rule “after conducting a five-year study and reviewing more than 1 million public comments.”

The aenators were also critical of the CFPB’s leniency toward payday lenders in individual cases. “We are also troubled by the CFPB’s recent enforcement actions related to payday lending,” the letter said, referring to the dropped enforcements.

Sen. Elizabeth Warren (D.-Mass.), an architect of the consumer protection bureau and a frequent critic of Mulvaney, said he has turned the bureau into a “rogue agency” ignoring its legal duties.

“Congress designed the CFPB to be the government’s most accountable bank regulator and created strict guidelines for its mission and operations,” she wrote in an op-ed published in The Wall Street Journal and on her Senate website. “Since Mr. Mulvaney took control, he has ignored congressional mandates, turning the CFPB into the politicized rogue agency he accused it of being before.”

Mulvaney is scheduled to appear before the House Financial Services Committee April 11 to deliver the CFPB’s twice-yearly report to Congress.

See related: Trump appointee promises “dramatically different” CFPB, Undert Trump appointee, CFPB is reversing consumer protection

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