WASHINGTON–Legislation has been introduced in the House that would repeal regulations recently announced by the CFPB for small-dollar, short-term loans, better known as payday loans.
In October, the CFPB announced its final rule on payday loansthat includes a cap of 36% on such loans, far below what many payday lenders charge. The rule, some 1,690 pages long, was set to go into effect in 2019 and the agency said was designed to help “financially vulnerable consumers who often cannot afford to pay back the full balance when it is due.”
The CFPB rules include a carve-out for credit unions, for which both CU trade associations had lobbied the agency. Consumer groups have objected to the House proposal.
The CFPB rule also includes what’s known as a full-payment test that lenders would be required to conduct to make sure the borrower could afford to pay off the loan and still meet basic living expenses and major financial obligations.
The new rule further includes a “debit attempt cutoff” for any short-term loan, balloon-payment loan, or longer-term loan with an annual percentage rate higher than 36% that includes authorization for the lender to access the borrower’s checking or prepaid account, as CUToday.info reported here http://www.cutoday.info/Fresh-Today/End-of-Payday-Loans-CFPB-Final-Rule-Sets-Small-Dollar-Loan-Cap-Here-s-the-Response
But lawmakers in the House say the new rules would “effectively ban millions of Americans from accessing credit,” and are seeking to duplicate a successful effort earlier this year to use the Congressional Review Act to kill the CFPB’s ban on mandatory arbitration clauses in financial contracts.
“I and my colleagues in Congress cannot stand by while an unaccountable federal agency deprives our constituents of a lifeline in times of need, all while usurping state authority,” said Rep. Dennis Ross (R-FL), who is sponsoring the repeal of the payday lending rule.
Since its enactment by the CFPB, the payday lending restrictions have been opposed by most Republicans in Congress, along with the payday lending industry. Consumer groups have been supportive of the CFPB plan.
Vanita Gupta, president and CEO of The Leadership Conference on Civil and Human Rights, issued a statement that “Payday lending is bad financial policy. It uses the lure of quick cash to trap struggling families, particularly families of color, in a cycle of debt and slowly drain them of what little money they have. The CFPB rule is a commonsense policy that requires lenders to ensure that borrowers have enough money to repay their loans, on time, without being left in an even worse financial position. Congress should stand with consumers and reject this shameful and dangerous bill.”
Analysts have said they expect the resolution will pass the House. Rep. Jeb Hensarling (R-TX), who chairs the House Financial Services Committee, said he supports the repeal.
“Americans should be able to choose the checking account they want, the mortgage they want and the short-term loan they want and no un-elected Washington bureaucrat should be able to take that away from them,” Hensarling said.
The prospects for similar legislation in the Senate are considered more challenging, according to analysts.