The Consumer Financial Protection Bureau (CFPB) on Tuesday formally rescinded a plan to impose new limits on payday lending, handing the industry a major victory by killing off tighter rules that it spent years lobbying to overturn.
The proposed rules would have been the first significant federal regulations on an industry that makes $30 billion a year in high-interest, short-term loans, often to already struggling borrowers. Those loans can leave borrowers trapped in cycles of debt, incurring fees every few weeks to replenish loans they cannot afford to pay off.
The change would have limited how many loans borrowers could take in a row and required lenders to verify that they had the means to pay back their debt. According to the consumer bureau’s estimates, the rules would have saved consumers — and cost lenders — some $7 billion a year in fees.
Lenders fought hard against the rules, which were one of the bureau’s signature efforts during the Obama administration, arguing that the changes would harm consumers by depriving them of access to emergency credit.
That argument resonated with the agency since it has taken a more business-friendly approach under President Donald Trump.
Mick Mulvaney, then Trump’s budget chief, became the agency’s acting director in 2017 and delayed the new restrictions from taking effect. Kathleen Kraninger, the bureau’s current director, started the formal process of rescinding them two months after she took over.
Trump appointees were so determined to eliminate the rule that they manipulated the agency’s research process to steer it toward their predetermined outcome, a bureau employee claimed in an internal memo reviewed by The New York Times. The memo’s disclosure prompted congressional Democrats to call for federal watchdogs to investigate.
Kraninger defended the decision Tuesday, saying the proposed restrictions had been based on insufficient evidence to justify the harm it would have caused lenders.
Although she left in place minor provisions, including one preventing lenders from trying to repeatedly take funds from a borrower’s overdrawn bank account, Kraninger said scrapping the rest of the rule would “ensure that consumers have access to credit from a competitive marketplace.”
The Community Financial Services Association of America, an industry trade group that lobbied heavily against the planned restrictions, said Kraninger’s decision would “benefit millions of American consumers.”
Critics, including more than a dozen consumer advocacy groups, said the agency had prioritized financial companies over the people it was supposed to be protecting.
“In the middle of an economic and public health crisis, the CFPB’s director chose to put a bunch of time and energy into undoing a protection that would have saved borrowers billions in fees,” said Linda Jun, a senior policy counsel for Americans for Financial Reform, a consumer advocacy group.
The Pew Charitable Trusts, which has long pushed for curbs on high-interest loans, called the decision “a grave error” that exposes millions of Americans to unaffordable payments with triple-digit interest rates.
Sen. Sherrod Brown, of Ohio, the ranking Democrat on the banking committee, said the rule’s elimination rewarded the industry’s intense lobbying efforts to fend off regulation.
Payday lenders have contributed $16 million to congressional candidates, mostly Republicans, since 2010, according to the Center for Responsive Politics. The Community Financial Services Association of America held its 2018 and 2019 annual conferences at the Trump National Doral golf club in Miami.
The bureau “gave payday lenders exactly what they paid for by gutting a rule that would have protected American families from predatory loans,” Brown said.
The scrapped rules could be revived, in some form, if former Vice President Joe Biden wins the presidency in November. A Supreme Court ruling last week granted the president the power to fire the bureau’s director at will.