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US Consumer Watchdog Removes Need for “Ability to Pay” From Final Payday Loan Rule

WASHINGTON (Reuters) – The U.S. Consumer Financial Protection Bureau on Tuesday released its long-awaited payday lending measure that reverses an Obama-era proposal requiring lenders to first ensure that a borrower is in. able to repay them.

Consumer advocates have castigated the move as yet another sign that the Trump administration is lenient on predatory lenders.

The rule follows the agency’s 2019 proposal to seek further recommendations on whether to implement the so-called “repayment capacity” provision for emergency loans, of an amount as low as $ 500, which is usually repaid on the borrower’s next payday. Lenders would have been required to ensure that borrowers could afford to repay a loan and meet other living expenses.

On Tuesday, the agency said “after reassessing the legal and evidentiary bases of these provisions and found them insufficient,” it would remove the provision from its new rule.

“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,” said agency director Kathy Kraninger, adding that the CFPB would continue to monitor the small dollar lending industry and enforce the law against bad actors.

The CFPB was created following the global financial crisis of 2007-2009 to crack down on predatory lenders. While lenders argue its payday rules would effectively eliminate critical interim financing for borrowers, consumer advocates have long criticized lenders for charging borrowers annualized interest rates that often reach several hundred percent.

Democrat Joe Biden, who will face Republican President Donald Trump in the Nov. 3 election, said in a statement that the move was “a boon to predatory lenders” and would be a burden on working families already struggling with the coronavirus pandemic.

“Loosening the restrictions on the predatory behavior of payday lenders is shameful in itself, but doing so in the midst of a devastating pandemic as countless families face unimaginable financial hardship is utterly inexcusable,” Biden said.

The new measure does not change the payment provisions of the 2017 rule, which prohibits lenders from re-attempting to withdraw funds from an account where two consecutive attempts have failed, unless consumers consent to other withdrawals, the agency said.

Industry groups, including the Community Financial Services Association of America, have argued that the agency’s measure does not go far enough.

“We are very disappointed that the CFPB has chosen to leave the payment provisions of the rule of origin intact. The Bureau’s own evidence did not support its payment practices provisions, which were flawed and based on unsubstantiated data, as did the repayment capacity provisions, ”said D. Lynn DeVault, CFSA President. .

Charla Rios, a researcher at the Center for Responsible Lending, a Washington-based consumer advocacy group, said the current coronavirus disruption could lead to increased demand for small dollar loans and the CFPB rule is actively facilitating the damage to consumers at a time of crisis and uncertainty.

“Families need the CFPB instead to work to ensure they are treated fairly by applying the common sense rule that payday lenders should provide loans that borrowers can reasonably afford to repay,” said Rios.

Reporting by Katanga Johnson; Editing by Richard Chang and Chizu Nomiyama


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