The Trump administration is considering a plan to reverse the restrictions on the Obama administration’s payday lenders.
The rule, which never went into effect, was intended to protect borrowers from large debts that could accumulate with payday loans. This would force the lenders to ensure that the borrowers could actually repay the loans.
Now the Consumer Financial Protection Bureau (CFPB) wants to reverse this rule. The agency’s director, Kathy Krainger, said it was about giving borrowers more options and creating competition among payday loan companies.
But the National Foundation for Credit Counseling says removing protections for consumers can have big financial consequences.
“It’s one thing for you to borrow a loan that could potentially generate 600% interest income stacked with a ton of fees, but it’s quite another if you find yourself in a situation where you can’t. pay it off, ”Bruce McClary with National Foundation for Credit Counseling. “So you are really in danger. Then a fee is added to the fee.
Consumer advocates believe this is the start of a downward spiral. If borrowers cannot repay their loans on time, they often borrow more and go into more debt.
According to CFPB data, half of all payday loans are part of a sequence that spans at least ten consecutive loans. Additionally, monthly borrowers are disproportionately likely to stay in debt for 11 months or more.
But the CFPB argued that repealing the rule and not requiring lenders to guarantee their loans would increase consumers’ access to credit, saying in a statement:
“The bureau is concerned that these provisions may reduce access to credit and competition in states that have determined that it is in the best interests of their residents to be able to use such products, subject to the limitations of United States law. the state. ”
It is not final. The public has 90 days to comment on the proposed rule change before a final decision is made.
