Federal regulators have finalized a new rule for payday lenders that removes a key provision crafted under the Obama administration. Under the revised rule, lenders will no longer have to verify that borrowers can repay their loan when due.
Consumer advocates say that without this protection, borrowers are often forced to borrow again and again, at interest rates as high as 400%.
The Consumer Financial Protection Bureau — a watchdog agency created in the wake of the 2008-09 financial crisis — tried to rein in the practices of payday lenders, drafting a rule that was finalized in 2017. The Trump administration s has been trying to water down Reign since he took over the Consumer Affairs Office at the end of the year.
The payday loan industry welcomed the review.
“CFPB’s action will ensure that essential credit continues to flow to communities and consumers across the country, which is especially important during these unprecedented times,” said D. Lynn DeVault, President of Community Financial Services Association of America, an industry trade group. .
Consumer groups have blasted the content of the new rule and its timing during a pandemic that has put tens of millions out of work.
“There’s never a good time to allow predatory lending carrying 400% interest rates, but now is the worst possible time,” said Mike Calhoun, president of the Center for Responsible Lending. “The pain caused by the CFPB gutting the payday rule will be felt most by those who can least afford it, including communities of color who are disproportionately targeted by payday lenders.”
The revised rule leaves in place another Obama-era provision designed to limit the ability of payday lenders to make repeated collection attempts on borrowers’ bank accounts. This measure – which is currently suspended under a court order – can help avoid costly overdraft fees.