Saturday, December 10, 2022

U.S. consumer watchdog removes ‘ability-to-pay’ need from final payday loan rule

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The U.S. Consumer Financial Protection Bureau on Tuesday issued its long-awaited payday lending measure that rescinds an Obama-era proposal requiring lenders first ensure a borrower is able to repay them.

Consumer advocates blasted the move as a further sign the Trump administration is going easy on predatory lenders.

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

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

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

The CFPB was created in the wake of the 2007-09 global financial crisis to crack down on predatory lenders. While lenders argue its payday rules would effectively eliminate critical stop-gap funding to borrowers, consumer advocates have long criticized the lenders for saddling borrowers with annualized interest rates that often reach several hundred percent.

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

“To loosen restrictions against predatory behavior by payday lenders is shameful by itself, but to do it in the middle of a devastating pandemic as countless families face unimaginable financial hardship is completely inexcusable,” Biden said.

The new measure does not alter the payments provisions of the 2017 rule, which prohibit lenders from making a new attempt to withdraw funds from an account where two consecutive attempts have failed unless consumers consent to further withdrawals, the agency said.

Industry groups, including the Community Financial Services Association of America, argued the agency’s measure doesn’t go far enough.

“We are very disappointed the CFPB chose to leave the payment provisions of the original rule intact. The Bureau’s own evidence didn’t support its payment practices provisions, which were flawed and based on unsupported data, much like the ability-to-repay provisions,” said D. Lynn DeVault, CFSA’s chairman.

Charla Rios, a researcher at the Washington-based, consumer-advocate group, Center for Responsible Lending, said that the ongoing coronavirus disruption may lead to greater demand for small-dollar lending and the CFPB’s rule actively facilitates harm to consumers at a time of crisis and uncertainty.

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

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