The Consumer Financial Protection Bureau formally scrapped a rule – originally proposed in 2017 under an Obama appointee – that would have put limits on payday lenders.
As written, the rule would have imposed an underwriting requirement on payday lenders. The revised regulation instead won’t require lenders to determine whether a customer can afford paying back the loan before approving one.
Massachusetts Sen. Elizabeth Warren, a Democrat who spearheaded the creation of the consumer bureau after the 2008 financial crisis, called the decision “appalling” in a tweet, noting that the move guts protections for Americans at a time when tens of millions have lost their jobs due to the pandemic and may be struggling financially.
Payday loans can provide fast, easy access to credit – but can come with very high interest rates. Several consumer groups criticized the bureau for siding with the payday loan industry, which has long fought the implementation of the rule, and green-lighting predatory lenders.
The original rule was proposed by former bureau director Richard Cordray, whose resignation in November 2017 set off a political fight for control of the controversial agency.
“Protecting consumers again takes a back seat to catering to the financial industry,” Cordray tweeted Tuesday.
The payday lending rule was one of last proposals put forth by the agency before Cordray resigned. He battled endless calls for his firing after President Donald Trump took office and stepped down several months before his term was set to end.
In the interim, Trump appointed Mick Mulvaney, who previously had pushed to abolish the agency as a member of Congress. Under Mulvaney’s direction, the agency put a hold on the rule. When Kathleen Kraninger took over as director in 2019, she began the formal process of rescinding the underwriting requirement.
Kraninger has argued that the underwriting rule would restrict consumer access to credit.
“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,” she said in a statement Tuesday.
The payday lending industry welcomed the decision.
The provision “imposed complex and costly regulations that would have effectively put lenders out of business altogether rather than protect consumers,” said D. Lynn DeVault, chairman of the Community Financial Services Association of America.
Last week, the Supreme Court ruled to limit the independence of the CFPB. It was a victory for Republicans who have long argued that the agency had too much unchecked power. The Trump administration sided with the law firm that brought the case, agreeing that the single director structure is invalid and violates the separation of powers. The ruling allows for the President to fire the director at will.