In her first major policy directive since she was sworn in this December, Consumer Financial Protection Bureau Director Kathy Kraninger on Wednesday announced a proposed rescinding of the bureau’s 2017 final rule governing high-cost installment loans, or those offered by so-called payday lenders.
The move follows up on an October announcement by then-acting Director Mick Mulvaney to loosen the underwriting requirements imposed on companies offering “payday, single-payment vehicle title, and longer-term balloon payment loans.“
The bureau’s rationale is that “there was insufficient evidence and legal support for the mandatory underwriting provisions in the 2017 final rule,” it said in a release that angered consumer groups. The bureau is also “concerned that these provisions would reduce access to credit and competition in states that have determined that it is in their residents’ interests to be able to use such products, subject to state-law limitations.”
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Commenters will have 90 days to respond, Kraninger noted. “In the meantime, I look forward to working with fellow state and federal regulators to enforce the law against bad actors and encourage robust market competition to improve access, quality, and cost of credit for consumers.”
The proposed cancellation was welcomed by the free-market, pro-Trump advocacy group Consumer Action for a Strong Economy. “Today, banks and lending institutions who make short-term loans are not only sufficiently regulated on the state and federal level, they are also heavily motivated to assess borrower risk and review lending practices in order balance market needs with borrowers’ ability to pay,” it said in a statement. “The CFPB’s decision to ease underwriting requirements will allow more consumers access to credit when they need it most, and allow the lending industry to set prices and standards more reflective of market realities instead of political agendas.”
But the change got lukewarm support as a “good first step” from the Community Financial Services Association of America, an industry group. “We are disappointed that the CFPB has, thus far, elected to maintain certain provisions of its prior final rule, which also suffer from the lack of supporting evidence and were part of the same arbitrary and capricious decision-making of the previous director,” said CEO Dennis Shaul.
Opposition came from Bartlett Naylor, financial policy advocate for the liberal-leaning Public Citizen, who said, “Just weeks into her tenure at the agency, Kraninger has released a proposal to roll back a rule that provides important protections to help people avoid getting caught in cycles of ever-increasing debt.” The proposal, he added, would overturn consumer protections to address payday lenders' unfair and abusive practices—protections that the CFPB spent years developing.”
Lauren Saunders, associate director of the National Consumer Law Center, said, the “sudden” proposed change would “eviscerate protections against predatory lending by cutting out the heart of the payday rule, which requires that lenders only make loans that borrowers have the ability to repay without re-borrowing.” Payday lenders, she added, “have a predatory business model where they profit while families are plunged into an unaffordable debt trap of loans at rates that reach 400 percent APR or higher.”
Notably, Kraninger’s decision drew a response on Twitter from her predecessor, Richard Cordray, who left the bureau in 2017 to run (unsuccessfully) for governor of Ohio. “It’s a bad move that will hurt the hardest-hit consumers,” he tweeted on Wednesday. “It should be and will be subject to a stiff legal challenge.”
Image via Jonathan Weiss/Shutterstock.com.