CFPB Curbs Major Payday Lending Rule

The Consumer Financial Protection Bureau (CFPB) today announced that it will not consider implementing an Obama-era rule proposal limiting the activity of “Payday, Vehicle Title, and Certain High-Cost Installment Loans,” which will allow small-dollar lending businesses to operate with reduced scrutiny from the federal government.

“Specifically, the Bureau is proposing to rescind the rule’s requirements that lenders make certain underwriting determinations before issuing payday, single-payment vehicle title, and longer-term balloon payment loans,” the Bureau’s press release reads. “The Bureau is preliminarily finding that rescinding this requirement would increase consumer access to credit.”

The rule, which was never actually implemented into CFPB enforcement policy, was conceived as a way of protecting financially vulnerable borrowers of payday loans from large amounts of debt that can quickly accumulate through the use of those kinds of loans.

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While there is currently no indication that the CFPB will apply a looser oversight philosophy on other businesses like the credit card or mortgage industries, a philosophy of reduced enforcement in any sector is likely to invite closer scrutiny by Democratic lawmakers on the House Financial Services Committee. Chairwoman Maxine Waters (D-CA) has already decried a “weakened” CFPB at the hands of the current Administration.

This follows previous activity from the Bureau’s acting director in October of 2018, Mick Mulvaney, when he announced that the Bureau would reconsider the rule’s mandatory underwriting requirements, while also addressing the rule’s specified compliance date. “The proposals the Bureau is releasing today fulfill that commitment,” the press release notes.

In early 2018, Mulvaney indicated shifting enforcement focus under his watch away from payday loans and prepaid debit cards, since those made up a minor percentage of consumer complaints the agency received when compared to debt collections.

The Consumer Bankers Association (CBA) praised the move in its own press release, calling the proposed rule “flawed” and that this will allow more families to fulfill emergency expenses.

“Allowing banks to operate in this space – subject to sound banking practices – will prevent bank customers from being forced to rely on less regulated and more costly sources of funds like online lenders, check cashers or pawn shops,” the CBA press release reads.

This move may indicate that CFPB Director Kathleen L. Kraninger, who took office after being confirmed by the Senate in December, is willing to follow her predecessor’s lead in terms of enforcement philosophy. Kraninger has deviated from Mulvaney’s actions in some areas, however, including in her decision to abandon plans to rename the Bureau.