The interim leadership of the Consumer Financial Protection Bureau has decided to reconsider regulatory rules for short-term, high-interest borrowing commonly known as payday lending.
The federal agency, which was created in response to the financial crisis of 2007-2008 and the subsequent Great Recession, announced Jan. 16 that it is reviewing a new rule requiring lenders to determine if borrowers can repay debts and cap the number of loans that lenders can make to a borrower.
The move reflects the philosophy of Mick Mulvaney, director of the White House Office of Management and Budget appointed by President Donald Trump as interim director of the CFPB to replace Obama appointee Richard Cordray.
The White House said Nov. 24 that Mulvaney, a former Republican congressman from South Carolina, would “take a common sense approach” that “will empower consumers to make their own financial decisions and facilitate investment in our communities” until a permanent director is nominated and confirmed.
Stephen Reeves, associate coordinator of partnerships and advocacy for the Cooperative Baptist Fellowship, termed the decision to reconsider the new payday lending rule “extremely disappointing and worrisome.”
“I cannot imagine a single legitimate reason to go back and undo this good work,” Reeves said. “At the very least, this decision should be left to a permanent director who has been confirmed by Senate.”
Consumers Union, the policy and mobilization division of Consumer Reports, also criticized the move.
“High-cost payday loans turn out to be debt traps for far too many borrowers who find them impossible to pay off when the bill comes due,” said Suzanne Martindale, senior attorney for Consumers Union. “There is simply no justification for delaying these reasonable consumer safeguards any further.”
Others say the CFPB rule would only serve to cut off access to vital credit to small-dollar borrowers when they need it the most.
“Taking out such a high-cost loan may not be ideal, but many consumers have no better options,” said Daniel Press, policy analyst at the Competitive Enterprise Institute. “When facing possible eviction or job loss, access to a financial safety net is crucial.”
Reigning in so-called predatory lending has been a priority of CBF advocacy since the program’s inception in 2013 under CBF Executive Coordinator Suzii Paynter.
Reeves, former public policy director for the Texas Baptist Christian Life Commission, said the Fellowship “will continue to respond on behalf of those caught in debt traps because of this predatory industry,” both at the federal level and in state legislatures.