Trump's CFPB to Rewrite Rule That Cracked Down on Payday Lenders

(Bloomberg) -- A U.S. regulator responsible for protecting consumers plans to rewrite a rule approved under its previous Democrat leadership that was meant to prevent payday lenders from saddling cash-strapped borrowers with expensive loans.

The Tuesday announcement from the Consumer Financial Protection Bureau indicates it will ease theregulation passed in October despite a massive lobbying campaign by the industry. The policy shift would be in line with President Donald Trump’s pledge to rollback onerous government restrictions on business that he contends are holding back economic growth.

Read More: Mulvaney Stops Lawsuits, Directs Review in First Week at CFPB

The rule was a priority for former CFPB Director Richard Cordray, an Obama administration appointee who frequently clashed with Republican lawmakers and financial firms. The regulator is now in the hands of Mick Mulvaney, Trump’s director of the Office of Management and Budget. Cordray is now running for governor of Ohio.

When Mulvaney took the reins at the CFPB as acting director more than two months ago, he said he wouldn’t “set the agency on fire.” But he did signal that the controversial watchdog’s tone would change immediately.

The payday lending rule limits how often indebted consumers can obtain short-term loans and how much money they can borrow. It applies to businesses, including banks and auto lenders, that offer loans with high interest rates that typically have to be repaid within two to four weeks. Until the CFPB took action, such lenders were mainly overseen by the states.

The agency issued Tuesday’s statement as the rule technically became effective. Still, the industry doesn’t have to comply with most of its provisions until Aug. 19, 2019, and the CFPB said it will entertain requests for waiving certain aspects of the regulation that have an earlier deadline.

The rule was likely to have upended the industry, which serves millions of customers who often are unable to get credit elsewhere. Payday lenders -- which generate about $3.6 billion in annual revenue, according to a CFPB study -- argue that the high fees and interest rates they charge are necessary because the borrowers have a high risk of not repaying the loans.

To contact the reporters on this story: Jesse Hamilton in Washington at jhamilton33@bloomberg.net, Robert Schmidt in Washington at rschmidt5@bloomberg.net.

To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, Gregory Mott

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