New Head of CFPB to Reevaluate Payday Loan Regulations

The Consumer Financial Protection Bureau is responsible for regulations connected to lending and the financial industry. Since 2012, the agency has been working to develop payday loan regulations that protect consumers from the abusive and manipulative tactics used by the industry. But in a recent statement, the new head of the CFPB said the agency plans to reevaluate those regulations, and make it easier for lenders to avoid them ever being enforced.

The CFPB Was Created to Regulate the Lending and Credit Industries

The Consumer Financial Protection Bureau (CFPB) was created in response to the Great Recession in July 2010. Based on President Obama’s proposal the year before, the Dodd-Frank Wall Street Reform and Consumer Protection Act changed the new regulatory agency with protecting American consumers and families from abusive and unfair business practices by banks, lenders, and credit card companies. It was the CFPB’s job to correct decades of under-regulation that had allowed Wall Street and the financial industry to put the country’s economy at risk with its subprime mortgages, high interest rates, and abusive collections procedures.

The CFPB’s Response to Abusive Payday Lenders

In response to this charge, starting in 2012, the CFPB began the lengthy process of investigating and eventually imposing regulations on some of the worst offenders: payday lenders. The industry regularly uses predatory lending strategies to take advantage of families in financial crisis, and those who are struggling to make ends meet. Here’s an example:

When a family living paycheck to paycheck faces an unexpected expense (possibly something as simple as needing new tires), they often turn to short-term loans from payday lenders to pay the bills. These loans are often due on the person’s next payday and charge extremely high interest rates in the meantime. When the payments on the payday loan push the family over the edge once more, they have to take another loan or suffer exorbitant penalty fees for missing the repayment deadline. This cycle can continue for months, and sometimes years, with the fees and interest piling up against the family, making it increasingly difficult for them to break out of debt.

Obama-Era Payday Loan Regulations Were Set to Take Effect Next Year

To address this concern, and break the cycle of debt for low-income families, in June 2016, the CFPB announced a set of proposed payday loan regulations designed to prevent borrowers from getting in over their heads. The regulations would require lenders to:

• Determine if the borrower had the income to repay the debt, in addition to basic living expenses, before issuing the loan 
• Offer principal payoff options in lower-risk situations that break up payments in 2 extensions, rather than charging compounding interest 
• Limit reborrowing by creating a 30-day cooling off period for payday loans and, refinancing, and auto title loans

Most of these regulations were set to go into effect in August 2019, giving the industry time to adjust to the new requirements.

New CFPB Director Mick Mulvaney Considers Taking Back Regulations

In a statement issued on January 16, 2018, the CFPB, under the direction of its new Trump Administration director, Mick Mulvaney. The statement said:

“The Bureau intends to engage in a rulemaking process so that the Bureau may reconsider the Payday Rule.”

It promised that it may waive the deadline under the Payday Rule for lenders to register with the agency. The statement indicated it didn’t want the companies to engage in work for a system that may never come into place. 

If Mulvaney and the CFPB decides to repeal the rules put in place by his predecessor, it will take time – possibly years. The law governing the CFPB requires it to conduct research to show the rules are ineffective, send out notices, and consider comments from both companies and consumers. But the end result could be a consumer protection agency more focused on appeasing the financial industry than protecting consumers.

Dani K. Liblang is a consumer protection attorney at The Liblang Law Firm, PLLC in Birmingham, Michigan. She helps borrowers faced by illegal collections efforts. If you are being hounded by debt collectors, contact The Liblang Law Firm, PLLC, today to schedule a meeting.