The Consumer Financial Protection Bureau intends to engage in a rule-making process to reconsider the Payday Rule, which could result in a full repeal or significant revision.
A payday loan is a small, short-term and unsecured loan, typically with high rates that must be repaid in a few weeks or typically on the borrower’s next payday, hence the name. The products have received criticism for squeezing borrowers already in tight financial situations.
The proposed payday rule would require lenders to determine upfront whether people can afford to repay the loans.
The decision to try to revise or repeal the rule illustrates the dramatic shift in the consumer watchdog agency since President Donald Trump named Mick Mulvaney as director.
Sen. Elizabeth Warren, who helped create the CFPB, immediately blasted the decision to reconsider the rule.
“Payday lenders spent $63,000 helping Mick Mulvaney get elected to Congress and now their investment is paying off many times over,” she said in a statement. “By scrapping this rule, Mulvaney will allow his campaign donors to continue to generate massive fees peddling some of the most abusive financial products in existence.”
Other organizations also came out against the decision, but not all were opposed.
“The CFPB’s decision to revisit its small-dollar rule is welcomed news for the millions of American consumers experiencing financial hardship and in need of small-dollar credit,” Richard Hunt, president and CEO of the Consumer Bankers Association, said in a statement.
“Under the current rule, many banks are forced to sit on the sidelines and prevented from offering affordable and popular small-dollar credit options to help meet the needs of their customers,” Hunt added. “As the CFPB reconsiders this rule, we encourage the Bureau to work with bank regulatory agencies to examine the use of bank-offered small-dollar lending products, such as deposit advance products, and ensure any final rule treats all banks equally.”
The rule technically went into effect Tuesday, but the CFPB said most of it would not be enforced until August 2019.
