U.S. consumer watchdog removes ‘ability-to-pay’ need from final payday loan rule

U.S. consumer watchdog removes’ability-to-pay’ desire from final payday loan principle


WASHINGTON — The U.S. Consumer Financial Protection Bureau on Tuesday issued its long-awaited payday lending measure that rescinds an Obama-era proposal requiring creditors first guarantee a borrower is able to repay them.

Consumer advocates blasted the move as a further sign President Donald Trump’s government is going easy on predatory lenders.

The rule follows the agency’s 2019 suggestion to seek fresh recommendations on whether to implement the so-called”ability-to-repay” provision for emergency loans, of as little as 500, which are typically repaid on the borrower’s next payday. Lenders could have been asked to make sure borrowers had the capacity fulfill with other home expenses and to pay back a loan.

On Tuesday, the agency stated”after reevaluating the legal and evidentiary foundations for these provisions and finding them to be insufficient,” it might remove the provision from its rule.

“Our actions today ensure that customers have access to credit from a competitive marketplace, have the very best information to make educated financial decisions and retain vital protections without hindering this access,” stated the agency’s manager, Kathy Kraninger, adding that the CFPB would continue to monitor the little dollar lending business and enforce regulations against lousy actors.

The CFPB was made in the aftermath of the 2007-09 global financial crisis to crack down on predatory lenders. While creditors argue that its payday rules would effectively remove critical stop-gap financing consumer advocates have criticized the creditors for low-income borrowers with interest rates which frequently reach several hundred percent.

The new measure doesn’t change the obligations provisions of the 2017 rule, which prohibit creditors from making a new attempt to withdraw funds from an account where two successive attempts have failed unless customers consent to further withdrawals, the bureau said.

Business groups, such as the Community Financial Services Association of America, contended the agency’s step doesn’t go far enough.

“We are extremely disappointed that the CFPB chose to leave the payment provisions of the original rule intact. The Bureau’s own evidence didn’t support its payment practices provisions, that were flawed and based on unsupported data, similar to the ability-to-repay provisions,” explained D. Lynn DeVault, CFSA’s chairman.

Charla Rios, a researcher in the Washington-based, consumer-advocate group, Center for Responsible Lending, stated that the continuing coronavirus disruption may lead to greater requirement for small-dollar lending and also the CFPB’s rule knowingly eases harm to consumers at a time of uncertainty and crisis.

“Families require the CFPB to rather work to ensure they are treated fairly by implementing the common sense principle that payday lenders must make loans that borrowers may reasonably afford to repay,” Rios said.

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