Today The Consumer Financial Protection Bureau said that it will propose changes in January to the underwriting provisions of the agency’s rules for payday lenders AKA predatory lenders as well as to when those rules take effect.
Joseph Lynyak III is a partner at the international law firm Dorsey & Whitney and one of the nation’s foremost experts in the county on Dodd-Frank, regulatory reform, and the CFPB. His practice includes providing financial intermediaries advice in the areas of regulatory and strategic planning, application and licensing, legislative strategy, commercial and consumer lending, examination, supervision and enforcement, and general corporate matters. Of the news today he says,
“The CFPB’s announcement addresses one of the fundamental flaws in the payday rule—with few exceptions, payday borrowers have extremely poor credit profiles—meaning that imposing an ability to repay requirement is oftentimes a fool’s errand. From a personal responsibility perspective, in many cases obtaining a payday loan is an individual decision to prevent an immediate disaster from occurring, but with knowledge that a difficult predatory lenders repayment obligation is a more acceptable risk,” Lynyak says.
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“Considering that many states have recently addressed by statute responsible payday lending behavior and reforms, it will be interesting to see if the CFPB recognizes and elects to defer to these state solutions instead of the complex regulatory structure it created as part of the currentpredatory lenders rule,” Lynyak says.
Statement on Mulvaney Plan to Gut predatory lenders Rule
WASHINGTON, D.C. – Today, the Consumer Financial Protection Bureau under acting director Mick Mulvaney and deputy director Brian Johnson announced it plans to gut the core provisions of its 2017 rule on small-dollar loans, the first effort at the federal level to rein in the abuses of predatory lenders by regulation.
The rule, which was years in the making, created vital protections for consumers of payday, car title, and some longer-term loans to ensure that predatory lenders don’t trap customers in unaffordable loans. Underlying the rule is the common-sense principle that lenders should consider whether borrowers have the ability to repay a loan before they risk their financial well-being.
“The consumer bureau used to be a great agency dedicated to enforcing the law and protecting consumers, is now to putting predatory lenders ahead of the law and its mission with this attempt to gut consumer protections,” said José Alcoff, payday campaign manager at Americans for Financial Reform. “Mulvaney’s CFPB now wants to wipe out a simple, common-sense requirement that lenders ought to examine a borrower’s creditworthiness before making a loan that too often becomes a debt trap for the most vulnerable consumers.”
“We have already seen that Mick Mulvaney’s bureau has little to no interest in enforcing the law against predatory lenders,” Alcoff said. “Under Mulvaney, the consumer bureau has dropped cases against predatory lenders that illegally charged up to 950 percent annual interest rates, dropped an investigation into a case against a lender that had contributed to Mulvaney’s congressional campaigns, and just this week settled a suit against payday lender Cash Express for a paltry sum, far less than the originally planned amount which would have gone to refunding the consumers that they had wronged.”