(NEW YORK) — The nation’s federal financial watchdog said Wednesday that it plans to roll back most of its consumer protections governing payday lenders.
The move is a major win for the payday lending industry, which argued the government’s regulations could kill off a large chunk of its business. It’s also a big loss for consumer groups, who say payday lenders exploit the poor and disadvantaged.
This is also the first rollback of regulations under the Consumer Financial Protection Bureau’s new director, Kathy Kraninger, who took over the bureau late last year.
The cornerstone of the regulations was a rule that forced lenders to make sure borrowers could afford to repay a payday loan without being stuck in a cycle of debt. This standard would be repealed under the new rules.
Critics of the payday lending industry have argued that without these underwriting standards, the CFPB’s new regulations are effectively toothless. The main criticism of the payday lending industry was that many borrowers would take months to repay a loan that was originally designed only to last a couple of weeks.
“This proposal is not a tweak to the existing rule … it’s a complete dismantling of the consumer protections (the bureau) finalized in 2017,” said Alan Horowitz, a researcher with Pew Charitable Trusts, a think tank whose research on the industry was relied on heavily by the bureau when the original rules were unveiled a year and a half ago.
CFPB did propose keeping one part of the payday lending regulations: a ban on the industry from making multiple debits on a borrower’s bank account, which consumer advocates argued caused borrowers hardship through overdraft fees.
The proposed new rules are subject to a 90-day comment period by the public. The proposed changes are almost certain to face legal challenges, since the bureau is taking a radical departure from its previous position.