Last fall, we told you about new rules issued by the Consumer Financial Protection Bureau (CFPB) that would protect payday loan customers from some of the most abusive practices in that industry. These new rules, scheduled to be enforced in mid-2019, offer basic and common sense protections for consumers, like requiring that lenders verify customers can afford to repay the loans before making them and that they gain authorization before drawing payment from a borrower’s bank account after two unsuccessful attempts. The rules were a promising and important first step in preventing consumers from being lured into debt traps of frequent, high-interest loans.
These protections were especially welcome news for Oklahomans since our state has the highest rate of payday loan usage in the country. Even worse, the majority of payday loans in Oklahoma are going to frequent borrowers who take out seven or more of these loans in a year. But now these protections have come under attack from two sources: Congress and the new leaders of the CFPB.
Congress has taken the first step to block these new protections
The Congressional Review Act gives Congress the right to block new regulations, and a bill has been introduced that would do exactly that for the CFPB payday loan rule. HJ Res 122 was introduced in the U.S. House of Representatives in December. If this bill passes the House and the Senate, the CFPB rule protecting consumers from abusive predatory lenders will not take effect, and the agency will be prohibited from making any similar rules without Congressional permission. That means the CFPB’s ability to regulate the predatory lending industry could be severely reduced. Considering that the agency was created in 2011 with the purpose of protecting consumers from harmful and unfair practices in the financial industry, this possible restriction on their ability to regulate payday lenders (who engage in some of the most harmful practices) would be a blow to the agency’s effectiveness.
The CFPB is also considering rolling back these protections
Since the CFPB issued these protections last fall, the agency has seen a change in leadership. Former Director Richard Cordray resigned in November and Mick Mulvaney was named the acting director of the agency (though it is still unclear whether that appointment is legal). Mick Mulvaney, a member of the Trump Administration, has taken a more negative view of consumer protections than the previous director, and it’s no surprise to see signs that the CFPB will shift to accommodate the acting director’s views.
Last week, the CFPB announced that they intend to reconsider the payday lending rule they issued last fall. The rule in question was finalized last October after more than two years of research and public comment, and it had been considerably scaled back from the version that was initially proposed in 2015, so it’s quite unusual for the agency to announce plans to revise or repeal the rule this soon after its publication. But this announcement signals to predatory lenders that they needn’t put a lot of effort into bringing their business practices into compliance with the new rules before enforcement begins in 2019.
What happens now?
Congress will have until early summer to decide whether to allow the rule to go into effect or to block it. You can contact your Representative and Senators in Washington and tell them not to block these important protections. As long as Congress doesn’t intervene, any changes to the rule from the CFPB could take a year or more to be proposed, discussed, opened for public comment, and finalized. Consumer protection groups will be active in that process, and we’re not sure right now what kind of changes might be discussed or proposed.
In the meantime, there’s also work to be done here in Oklahoma. Last year, the Legislature attempted to expand predatory lending in Oklahoma. They were unsuccessful, thanks to a veto by Governor Mary Fallin, but it’s possible they will try again this year. We must be vigilant and fight against any attempts to expand these dangerous practices in our state. To protect Oklahomans’ financial well-being, we should be reforming the predatory loan industry, not expanding it.