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Consumer watchdog agency considers repealing payday lending rules

Consumer watchdog agency considers repealing payday lending rules
Mick Mulvaney is acting director of the Consumer Financial Protection Bureau. (Olivier Douliery / TNS)

The Consumer Financial Protection Bureau has decided to reconsider a key set of rules enacted last year that would have protected consumers against harmful payday lenders.

The bureau, which came under control of the Trump administration late last year, said in a statement Tuesday that it plans to take a second look at the payday lending rules. Although the bureau did not submit a proposal to repeal the rules outright, the statement opens the door for the bureau to start the process of revising or even repealing the regulations.

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The bureau also said it would grant waivers to companies as the first sets of regulations go into effect this year.

The cornerstone of the rules enacted last year would have been that lenders must determine, before giving a loan, whether the borrower can afford to repay it in full with interest within 30 days. The rules would have also capped the number of loans a person could take out in a certain period of time.

If allowed to go into effect, the rules would have had a substantial negative effect on the payday lending industry, where annual interest rates on loans can exceed 300%.

The industry derives most of its profit from repeat borrowers: those who take out a loan, but struggle to repay it back in full and repeatedly renew the loan. When the bureau finalized its rules last year, it estimated that loan volume in the payday lending industry could fall by roughly two-thirds. The industry, which operates more than 16,000 outlets in 35 states, probably would see thousands of those stores close.

Most of the rules would not have gone into effect until August 2019.

Since Obama appointee Richard Cordray stepped down as director in November, the Trump administration has been moving quickly to clamp down on the bureau's activities. The bureau is now under the control of Mick Mulvaney, also the White House's budget director, who before he took the job called the bureau a "sick joke."

During the 2016 election cycle, when Mulvaney was still a congressman from South Carolina running for reelection, he received $31,700 in contributions from the payday lending industry, according to data from the Center for Responsive Politics.

A CFPB spokesman referred questions about what the bureau plans to do with the payday lending rule to the White House, which did not respond to requests for comment.

"We have been worried that the CFPB could revisit these rules. We just didn't expect it so soon," said Lauren Saunders with the National Consumer Law Center.

A total repeal of the rules, if the CFPB decides to seek that, could take years to wind through the appropriate regulatory channels. The bureau would have to conduct research to show that the current rules are not working, put out notices for repealing the rules, and consider public and industry comments, among other steps. The bureau started building a case for its current payday lending regulations in 2012.

Dennis Shaul, chief executive of the Community Financial Services Assn. of America, which represents the payday lending industry, said he was "pleased" that the bureau was revisiting the regulations.

There is a bill in front of Congress that would repeal the payday lending rules entirely as well.

UPDATES:

3:05 p.m.: This article was updated with additional details and background information and with comments from Lauren Saunders and Dennis Shaul.

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1:50 p.m.: This article was updated throughout with additional details and background information.

This article was originally published at 1:15 p.m.

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