Payday lenders are once again under the microscope this on Capitol Hill. Republican and Democratic lawmakers are using the same U.S. Federal Reserve data to make their cases.
The Consumer Financial Protection Bureau wants to reconsider an Obama-era rule designed to keep payday lenders from preying on vulnerable consumers. The Obama-era rule — implemented under former CFPB director Richard Cordray in 2017 — set stricter conditions for short-term loan companies, requiring them to assess the creditworthiness of the borrowers.
The government agency has said it wants to reverse course because, it argues, the rules have choked off access to credit for people who need it most. Republican lawmakers want to ease some of the restrictions on these lenders that Democrats say have punitive, and sometimes astronomical, interest rates.
Rep. Gregory Meeks, a Democrat from New York, said it was “deeply disappointing” by the CFPB’s move to rescind the Obama-era rule. He chairs the Subcommittee on Consumer Protection and Financial Institutions within the Committee on Financial Services. “It is hard to see how the actions of the bureau under Mr. Trump’s leadership team is fulfilling its core mission of putting consumers first,” he said.
Meeks cited statistics like U.S. Federal Reserve findings that four in 10 adults couldn’t handle an unexpected $400 expense without borrowing or selling something. And so did his opponent.
Rep. Blaine Luetkemeyer of Missouri, the subcommittee’s ranking Republican, invoked the same Federal Reserve data on that $400 expense — but this time to argue the other side of the coin. Consumers certainly needed protections, he said. “However, regulations that curb choice and stifle access to credit have no place in our economy.” People who can’t pay emergency expenses often need quick, easy loans, he said, and the industry has been sullied by a few bad actors.”
The agency’s previous director, Richard Cordray, aggressively went after companies mistreating consumers. The CFPB is now led by Kathy Kraninger, who worked in the White House Office of Management and Budget in the Trump administration. Kraninger has said the bureau should play up financial literacy and empower “consumers to help themselves protect their own interests.”
Critics say such a pullback would be a devastating about-face and a bad look for an agency that’s supposed to be standing up for vulnerable consumers’ best interests. One 2016 study said payday loan interest rates can soar up to an astronomical 662%. Members of the public have a May 15 deadline to comment on a proposal to roll back Obama-era rules on payday lenders.
So far, there have been 8,000 comments on the proposal.
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