New regulations on payday loans that were set to take effect later this year will most likely be tossed, the new head of the Consumer Financial Protection Bureau said on Wednesday.
The restrictions, devised under the Obama administration, were meant to rein in the exploitative industry by requiring that lenders check to see if borrowers are able to repay the loans while covering basic living expenses, and preventing the lenders from issuing repeated loans to the same customers in a short time period.
Now, without much fanfare, these new restrictions appear to be out the window. Kathleen Kraninger, the new head of the CFPB, has proposed trashing almost all of the incoming regulations. The bureau said in a statement on Wednesday that there was “insufficient evidence and legal support” to justify checking customers ability to replay loans.
Consumer advocates, unsurprisingly, are pissed.
“It’s not like the agency wrote the old rule on a whim,” Linda Jun, attorney for Americans for Financial Reform, told the New York Times. “It was the outcome of a five-year process, with a lot of research and conversations with stakeholders on all sides. To essentially say ‘just kidding’ and toss it aside is extremely disconcerting.”
It’s not surprising that the new regulations have gone by the wayside under the Trump administration. In fact, acting Chief of Staff Mick Mulvaney—who was previously the acting chair of the CFPB—specifically asked a judge to prevent the new regulations from going into effect.
Payday loans are a massive industry. In 2017, Americans borrowed $29 billion in payday loans, and paid $5 billion in fees. The companies making that money were not going to give it up without a fight.
From the Times:
[The new regulations] were fiercely opposed at every step by lenders, who warned that the new restrictions would decimate their business. Industry officials said many of the nation’s 14,300 payday lender storefronts — about the same number of locations in the United States as Starbucks — would have to close.
Now, the administration is asking for more time to figure out how to wriggle out of the situation. It requested a delay in the implementation of the new regulations, moving it from this August to late 2020. That would allow payday lenders to make $4 billion more than they would were the earlier timeline kept.
One provision of the new restrictions that will take effect is a rule that will prevent payday lenders from directly debiting money from borrowers’ bank accounts after two attempts to collect the loan. This often leads to huge overdraft fees for customers. But many of the other restrictions that would have helped customers are likely to be knocked down.
Congrats to all payday lenders—looks like you’ve won this one.