As drafted, the rule would have imposed an underwriting requirement on payday lenders. The revised regulations will not require lenders to determine whether a client can afford to repay the loan before approving one.
Massachusetts Senator Elizabeth Warren, a Democrat who led the creation of the Office of Consumer Affairs after the 2008 financial crisis, called the move “appalling” in a Tweeter
, noting that the move undermines protections for Americans at a time when tens of millions of people have lost their jobs due to the pandemic and could face financial hardship.
Payday loans can provide quick and easy access to credit, but can come with very high interest rates. Several consumer groups criticized the bureau for siding with the payday lending industry, which has long opposed the rule’s implementation, and for giving the green light to predatory lenders.
The rule of origin was proposed by former bureau chief Richard Cordray, whose resignation in November 2017 sparked a political struggle for control of the controversial agency.
“Consumer protection is once again taking a back seat to restoring the financial sector,” Cordray tweeted
The payday loan rule was one of the agency’s last proposals before Cordray resigned. He fought endless calls for his dismissal after President Donald Trump took office and resigned several months before his term ended.
In the meantime, Trump has appointed Mick Mulvaney, who had previously pushed to abolish the agency as a member of Congress. Under Mulvaney’s leadership, the agency put the brakes on the rule. When Kathleen Kraninger took over as Director in 2019, she began the formal process of canceling the underwriting requirement.
Kraninger argued that the underwriting rule would restrict consumers’ access to credit.
“Our actions today ensure that consumers have access to credit in a competitive market, have the best information to make informed financial decisions and maintain key protections without impeding that access,” she said in a statement Tuesday. .
The payday loan industry has welcomed the move.
The provision “imposed complex and costly regulations that would have effectively bankrupted lenders rather than protecting consumers,” said D. Lynn DeVault, president of the Community Financial Services Association of America.
Last week, the Supreme Court ruled to limit the independence of the CFPB. It was a victory for Republicans who have long argued that the agency has too much unchecked power. The Trump administration has sided with the law firm that brought the case, agreeing that the one-director structure is invalid and violates the separation of powers. The decision allows the president to fire the director at will.