The U.S. consumer watchdog on Wednesday proposed reviewing a rule cracking down on payday lenders in what consumer advocates said is a further sign consumer protections are being eroded by the Trump administration.
The Consumer Financial Protection Bureau is revisiting the payday lending rule, drawn up under the Obama administration, after payday lenders complained its "ability-to-repay" requirement would hurt the industry and consumers.
Repealing the ability-to-repay provision, which was due to go into effect in August, is the first big move by director Kathy Kraninger, a former Office of Management and Budget official who took over as CFPB director in December.
"The Bureau will evaluate the comments, weigh the evidence, and then make its decision," said Kraninger, who added that she anticipates working with state and federal regulators to enforce the law against bad actors.
Payday loans are small and short term, typically due with a borrower's next paycheck. Lenders argue they provide borrowers with critical stopgap funding, and warned the rule would effectively eliminate a product that can be a financial lifeline for many who lack access to more traditional banking products.
But the loans have long been criticized by consumer advocates for saddling borrowers with unaffordable debt containing annualized interest rates that often reach several hundred percent.
The contentious provision conceived by former CFPB director Richard Cordray requires payday lenders to determine that the consumer has the means to repay the loan as well as meet other living expenses, when it comes due typically within 30 days.
The bureau first said it planned to revisit the rule in October 2018 under then-interim director and White House budget chief Mick Mulvaney. He had said the rule would hurt the industry and deprive consumers of critical stop-gap funding.
Mulvaney and his fellow Republicans have long criticized the CFPB, which was created in the wake of the 2007-09 global financial crisis to crack down on predatory lenders, saying it drastically overstepped its mandate under Cordray.
"Implementing this ability-to-repay provision was not a mandate by Congress, but an exercise of the agency's discretionary jurisdiction. We are revisiting it to be certain that the legal basis is robust enough to continue to support the rule," an agency official told reporters on Wednesday.
The CFPB, which worked on the rule for five years, estimated it would lower the industry's revenue by two-thirds.
In a separate proposal, the agency said it is seeking industry comment to delay the implementation of the underwriting provision by three months to Nov. 19, 2019.
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