US consumer watchdog removes need for ‘ability to pay’ from payday loan final rule

WASHINGTON (Reuters) – The U.S. Consumer Financial Protection Bureau released its long-awaited payday loan measure on Tuesday that reverses an Obama-era proposal requiring lenders to first ensure a borrower is able to reimburse them.

Consumer advocates blasted the move as yet another sign the Trump administration is being soft on predatory lenders.

The rule follows the agency’s 2019 proposal to seek further recommendations on whether to implement the so-called “repayment capacity” provision for emergency loans, as low as $500, which are usually repaid on the borrower’s next payday. Lenders would have been required to ensure that borrowers had the means to repay a loan and meet other living expenses.

On Tuesday, the agency said “after reassessing the legal and evidentiary bases for these provisions and finding them insufficient” it would remove the provision in its new rule.

“Our actions today ensure consumers have access to credit in a competitive marketplace, have the best information to make informed financial decisions, and maintain key protections without impeding that access,” said agency director Kathy Kraninger, adding that the CFPB would continue to monitor the small dollar loan industry and enforce the law against bad actors.

The CFPB was created in the aftermath of the 2007-2009 global financial crisis to crack down on predatory lenders. While lenders argue its payday rules would effectively eliminate critical bridge financing for borrowers, consumer advocates have long criticized lenders for charging borrowers annualized interest rates that often run into the hundreds of per cent. hundred.

Democrat Joe Biden, who will face Republican President Donald Trump in the November 3 election, said in a statement that the decision was “a boon for predatory lenders” and would be a burden on working families already struggling with the crisis. coronavirus pandemic.

“Relaxing restrictions against predatory behavior by payday lenders is shameful in itself, but to do so in the midst of a devastating pandemic when countless families face unimaginable financial hardship is completely inexcusable,” Biden said.

The new measure does not change the payment provisions of the 2017 rule, which prohibits lenders from making another attempt to withdraw funds from an account where two consecutive attempts have failed unless consumers consent otherwise. withdrawals, the agency said.

Industry groups, including the Community Financial Services Association of America, have argued that the agency’s measure does not go far enough.

“We are very disappointed that the CFPB chose to leave the payment provisions of the rule of origin intact. The Bureau’s own evidence did not support its payment practices provisions, which were flawed and based on unreliable data. substantiated, as are the repayment capacity provisions,” said D. Lynn DeVault, President of CASA.

Charla Rios, a researcher at the Washington-based consumer advocacy group Center for Responsible Lending, said the current coronavirus disruption could lead to greater demand for small-dollar loans and that the CFPB rule is actively facilitating damages. consumers at a time of crisis and uncertainty.

“Families need the CFPB to work instead to ensure they are treated fairly by enforcing the common sense rule that payday lenders should make loans that borrowers can reasonably afford to repay,” said Rios.

Reporting by Katanga Johnson; Editing by Richard Chang and Chizu Nomiyama