The Consumer Financial Protection Bureau this week said it will reconsider proposed rules for payday lenders that were scheduled to take effect Wednesday.
The CFPB drew them up under previous director Richard Cordray, who left the job to seek the Democratic nomination for Ohio governor. President Trump appointed budget director Mick Mulvaney to lead the bureau.
Cordray acknowledged in a December interview that it was possible that the CFPB could roll back the rules under Trump.
“Now what I did was, we finalized these rules, and we got them published, and they are now law of the land,” Cordray said. “If you’re going to undo them, you’re going to have to go through the same elaborate process we went through to make the rule.”
In a tweet on Wednesday, Cordray called the decision a “truly shameful action.”
A press release from the bureau said it would “engage in a rulemaking process” to reconsider the rules. In the meantime, the bureau dispensed with an upcoming application deadline and said it would “entertain waiver requests” from applicants.
Income Checks And Limits For Repeat Lending
The CFPB rules would require lenders to check borrowers’ income to ensure they could pay back the loan and afford basic living expenses.
“In the cases that we see, our clients would not pass that test,” said Katherine Hollingsworth, an attorney with the Legal Aid Society of Cleveland who works with payday borrowers. “The lender would not be able to loan to that borrower, because the borrower would not be able to show the ability to repay the loan and cover life’s necessities.”
Payday customers typically pay fees per hundred dollars borrowed and must pay back the loan within two weeks, which can equate to a high yearly interest rate. According to The Pew Charitable Trusts, the average annual percentage rate for some of Ohio’s largest lenders is 591 percent.
Another CFPB rule would require lenders to wait 30 days before lending to someone who has taken out three loans in quick succession.
Patrick Crowley, a spokesman for the Ohio Consumer Lenders Association, called the rules “an overreach by the federal government,” saying it would “remove a very valuable source of credit to people who don’t qualify for loans from other institutions like banks.”
Statehouse Considers New Payday Rules
Another candidate for governor, Attorney General Mike DeWine, “does believe there should be some reform in the area of payday lending,” office spokesman Dan Tierney said.
DeWine, a Republican, hasn’t endorsed a specific approach.
A state legislative committee this week heard testimony on a proposal to limit payday loans to an effective annual interest rate of 28 percent. The measure, House Bill 123, was introduced last year by Republican State Rep. Kyle Koehler and Democratic State Rep. Mike Ashford.
It’s legislators’ second try in recent years at regulating the industry.
The Ohio General Assembly already passed such a limit in 2008, but no lenders signed up under the new rules. Instead, they gave out loans under a different part of state law—a practice the Ohio Supreme Court upheld in 2014.