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"Watchdog guts rules for payday loans" by U-T News Service, San Diego Union-Tribune 12/7/2019
Payday lenders won a major victory Wednesday after the Consumer Financial Protection Bureau moved to gut tougher restrictions that were to take effect later this year.
The industry has spent years trying to fend off the new rules, which were conceived during the Obama administration. The regulations were intended to prevent spiraling debt obligations by limiting the number of consecutive loans that could be made and requiring lenders to verify that borrowers could pay back their loans on time while still covering basic living expenses.
In her first major policy move, the bureau’s new director, Kathleen Kraninger, proposed eliminating nearly all of the regulation’s substantive requirements, including the “ability to repay” mandate. There was “insufficient evidence and legal support” for the provision, the bureau said. It also sought to drop a limit that would have prevented lenders from making more than three short-term loans without a 30-day “cooling off” period.
A payday loan customer who borrows $500 would typically owe about $575 two weeks later — an annual percentage rate of nearly 400 percent. If borrowers cannot repay their loans on time, they often borrow more and deepen their debt. It is a hard cycle to break: Half of all payday loans are part of a sequence that stretches at least 10 consecutive loans, according to the consumer bureau’s data.
Consumer advocates said the bureau’s reversal put the interests of businesses ahead of the public’s.
Linda Jun, senior policy counsel for Americans for Financial Reform, wondered whether the change was simply the result of the industry making enough noise.
“It’s not like the agency wrote the old rule on a whim,” she said. “It was the outcome of a five-year process, with a lot of research and conversations with stakeholders on all sides. To essentially say ‘just kidding’ and toss it aside is extremely disconcerting.”
Payday loans are effectively illegal in about 20 states, but in the rest, they are profitable and popular: Americans borrowed nearly $29 billion from payday lenders in 2017, paying $5 billion in fees, according to estimates by John Hecht, an analyst at financial services firm Jefferies.
In California, lenders may not cash the check until the borrower’s next payday, up to 31 days. The maximum loan amount a consumer can borrow is $300, and the maximum fee a payday lender can charge is 15 percent of the face amount of the check (up to a maximum of $45).
