Trump CFPB allows payday loans to people who cannot repay

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WASHINGTON – The Consumer Financial Protection Bureau released a final rule on Tuesday that makes it easier for payday lenders to lend at high interest rates to people who may not be able to repay them.

The CFPB rule overrides an Obama era requirement that payday lenders must first assess whether a person taking out a loan can actually afford to repay it. Essentially, this would have placed the same burden on payday lenders as banks to make long-term loans like mortgages.

Democrats and consumer advocates have accused the Trump administration of emptying protections for the most vulnerable consumers amid an economic crisis brought on by a pandemic.

Senator Elizabeth Warren said the rule derided the CFPB’s mission to protect consumers and gave the industry leeway to trap vulnerable communities in debt cycles.

Short-term payday loans have regular interest rates above 300%; depending on state laws, they can exceed 500% or even 600%. Lenders often allow people to renew their loans by paying a fee to delay repayment.

This is called “unsubscribe loans,” and that is how a two-week loan can swell long-term debt. CFPB’s own analysis in 2014 found that 80% of the payday loans were either rolled over or followed by another short-term loan within two weeks. Interest charges regularly exceed the original principal of the loan.

“The consequences could be devastating,” said Matt Litt, director of the consumer campaign for US PIRG, the state’s federation of public interest research groups. “If you’re already having trouble, getting a payday loan could make it worse when you take out a loan after a loan and find yourself in a debt trap because you can’t afford it first. ”

The CFPB did not respond to a request for comment. In a press release, agency director Kathleen Kraninger said the move was made to provide consumers with better access to capital.

“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 hindering that access,” she said in the statement.

The obligation to pay was developed at the end of the Obama administration and finalized in October 2017. But next month, the Trump administration appointed Mick Mulvaney as interim director, and he announced that implementation would be delayed. The administration then began the process of removing the requirement.

In 2019, The Washington Post published an audio leak from payday lenders discussing the need to raise large sums of money for Trump’s re-election campaign to gain the administration’s favor.

Ironically, certain measures taken by the Trump administration to weaken the CFPB could end up being used to defeat the president’s policies.

The office was created after the 2008 financial crisis and designed to be independent of the president. Its directors would be confirmed by the Senate for a five-year term and could not be dismissed by the president without valid reason. The Trump administration argued in court that it was unconstitutional. Last week, the Supreme Court agreed and decided that the president could dismiss a director of the CFPB at his discretion.

Democratic presidential candidate Joe Biden hinted in a tweet that he would fire Kraninger.

Similarly, in 2017, the Republican-controlled Congress used the little-known law of the Congressional Review Act of 1996 to roll back dozens of Obama-era rules and regulations. If the Democrats succeed in the November elections, they could turn the tide and do the same with Trump’s rules.

Linda Jun, Senior Policy Advisor at Americans for Financial Reform, said that if Biden won, there would be several ways to restore the ability to pay.

“I hope it is at the top of their priority list,” she said. “The ability to repay is a common loan principle. The idea that you should consider this like all other loans is the reason for this rule. For them to say that you don’t have to do it, I think it’s really baffling, especially when people are vulnerable. “

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