Changes would eliminate ‘ability to repay’ standard
By Ken Sweet
ASSOCIATED PRESS/The Spokesman Review 2/7/19
NEW YORK – The nation’s federal financial watchdog said Wednesday that it plans to abolish many of its consumer protections governing payday lenders. The move is a major win for the payday lending industry, which argued the government’s regulations could kill off a large chunk of its business. It’s also a big loss for consumer groups, who say payday lenders exploit the poor and disadvantaged with loans that have annual interest rates as much as 400 percent.
The cornerstone of the regulations was a requirement that lenders make sure borrowers could afford to repay a payday loan without being stuck in a cycle of debt, a standard known as “ability to repay.” This standard would be eliminated under the new rules. Another part of the rules, which would have limited the number of payday loans a person could roll over, was also eliminated.
Critics of the payday lending industry have argued that without these underwriting standards, the CFPB’s new regulations are effectively toothless. The main criticism of the payday lending industry was that many borrowers would take months to repay a loan that was originally designed only to last a couple of weeks, renewing the loan over and over again.
“This proposal is not a tweak to the existing rule … it’s a complete dismantling of the consumer protections (the bureau) finalized in 2017,” said Alex Horowitz, a researcher with Pew Charitable Trusts, a think tank whose research on the industry was relied on heavily by the bureau when the original rules were unveiled a year and a half ago.
The announcement was the first abolition of regulations under the Consumer Financial Protection Bureau’s new director, Kathy Kraninger.
The proposed new rules are subject to a 90day comment period by the public. The proposed changes are almost certain to face legal challenges, since the bureau is taking a radical departure from its previous position, which is not something federal regulators are typically allowed to do under law.