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Office of Consumer Affairs removes restrictions on payday loans

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The Consumer Financial Protection Bureau on Tuesday officially rolled back a plan to place new limits on payday lending, giving the industry a major victory by killing tougher rules it has spent years lobbying to overturn.

The proposed rules would have been the first major federal regulations on an industry that grants $ 30 billion a year in high-interest short-term loans, often to borrowers already in difficulty. These loans can leave borrowers trapped in debt cycles, incurring fees every few weeks to replenish loans they cannot afford to repay.

The change would have limited the number of loans borrowers could take out in a row and would have required lenders to verify that they had the means to repay their debt. The rules have saved consumers – and lenders – according to estimates by the Office of Consumer Affairs some $ 7 billion per year in fresh.

Lenders have fought fiercely against the rules, which were one of the bureau’s signature efforts during the Obama administration, arguing the changes would hurt consumers by denying them access to emergency credit.

This argument resonated with the agency as it took a more business-friendly approach under President Trump.

Mick Mulvaney, then Mr Trump’s budget chief, became the agency’s acting director in 2017 and delayed the entry into force of the new restrictions. Kathleen Kraninger, the current director of the office, has started the formal process of dismissing them two months after taking office.

The people appointed by Trump were so determined to eliminate the rule that they manipulated the agency’s research process to steer it toward their predetermined outcome, an office worker said in an internal memo reviewed by The New York Times . The disclosure of the memo prompted Congressional Democrats to ask federal oversight bodies to investigate.

Ms Kraninger defended the decision on Tuesday, saying the proposed restrictions were based on insufficient evidence to justify the harm they would have caused to lenders.

Although she left minor provisions in place, including one preventing lenders from repeatedly attempting to withdraw funds from a borrower’s overdrawn bank account, Ms Kraninger said removing the rest of the rule ” would ensure that consumers have access to credit in a competitive market ”.

The Community Financial Services Association of America, an industry trade group that has lobbied strongly against the planned restrictions, said Ms. Kraninger’s decision “would benefit millions of American consumers.”

Critics, including more than a dozen consumer groups, said the agency prioritized financial firms over the people it was supposed to protect.

“In the midst of an economic and public health crisis, the director of CFPB chose to devote a lot of time and energy to undoing protection that would have saved borrowers billions in fees,” said Linda Jun. , Senior Policy Advisor for Americans for Financial. Reform, a consumer advocacy group.

The Pew Charitable Trusts, which have long called for restrictions on high-interest loans, called the move a “big mistake” that exposes millions of Americans to unaffordable payments with triple-digit interest rates.

Sen. Sherrod Brown of Ohio, the leading Democrat on the banking committee, said removing the rule rewards intense industry lobbying efforts to push back the regulations.

Payday lenders have paid $ 16 million to congressional candidates, mostly Republicans, since 2010, according to the Center for a Responsive Policy. The Community Financial Services Association of America held its 2018 and 2019 annual conferences at the Trump National Doral Golf Club.

The office “gave payday lenders exactly what they paid for by ousting a rule that would have protected American families from predatory loans,” Brown said.

The deleted rules could be reinstated, in one form or another, if former Vice President Joseph R. Biden Jr. wins the presidency in November. A Supreme Court ruling last week gave the president the power to fire the office manager at will.

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