(CN) – The federal financial watchdog on Wednesday proposed overhauling Obama-era consumer protection rules designed to protect payday loan borrowers from ballooning debt and soaring interest rates.
Under the leadership of Kathy Kraninger, the Consumer Financial Protection Bureau, or CFPB, is revisiting its payday lending restrictions that require lenders to assess borrowers’ ability to repay loans before issuing them.
Payday loans are typically small and have a high interest rate. Under this type of loan, the borrower agrees to repay the debt when their next paycheck arrives. To help consumers avoid a relentless cycle of debit, the Obama administration crafted but had not implemented the assessment requirement. The CFPB included it in a final rule in 2017.
Last year, former Acting Director Mick Mulvaney announced that the CFPB would reconsider the assessment requirement, also known as the underwriting requirement. Mulvaney is now serving as President Donald Trump’s acting chief of staff.
The payday lending rule was set to take effect in August. The CFPB now says the compliance date must be delayed until November 2020 as it attempts to take the rule off the table.
The agency said in a statement Wednesday that it is “preliminarily finding that rescinding this requirement would increase consumer access to credit,” but critics of the proposed rollback argue that increased consumer access to credit can result in a surge of predatory lending.
“Borrowers need protections from predatory lenders, not the other way around,” the National Consumer Law Center tweeted shortly after the announcement was made.
The organization said the CFPB should fulfill its mission to protect consumers “instead of giving breaks to loan sharks.”
But the bureau argues the rollback of the payday loan rule will increase fair competition for lenders, provide more options for consumers and boost the industry.
The proposed rollback will not change 2017 rules that bar lenders from overdrafting consumers’ bank accounts by unsuccessfully withdrawing funds multiple times.
The CFPB said it will evaluate public comments made during a 30-day window before weighing the evidence and making its decision.
“In the meantime, I look forward to working with fellow state and federal regulators to enforce the law against bad actors and encourage robust market competition to improve access, quality, and cost of credit for consumers,” Director Kraninger said in a statement Wednesday.