One of the Obama administration’s signature consumer-protection actions was to write a long-awaited, badly needed set of rules for payday loans that the Consumer Financial Protection Bureau issued in November 2017. So it was hardly surprising last week when the Trump administration, which has devoted so much effort to erasing its predecessor’s accomplishments, came to the rescue of the payday lenders that monetize the desperation of financially strapped Americans. It’s a reprehensible move. And in laying out its reasons for easing up on payday lenders, the administration signaled its unwillingness to regulate predatory lending in general.
Payday lenders offer relatively small short-term loans to anyone with a paycheck and a bank account, regardless of his or her financial health. It’s precious close to no-questions-asked lending. The catch is that the loans have to be repaid in full within two to four weeks, and the fees charged — most commonly $15 per $100 borrowed — are the financial equivalent of a triple-digit annual interest rate. About 15 states have usury laws that block payday lending; the rest cap such loans at $300 to $1,000. (Find Minnesota’s rules at https://bit.ly/2Sj4aqB.)
These loans are so costly for consumers that no one with access to a Visa card or a home equity line of credit would ever dream of taking one out. That’s why the loans are considered a last-resort form of borrowing for people with few assets or bad credit — in other words, for the financially desperate.
Yet borrowers who live paycheck to paycheck often have no ability to repay a payday loan on time, so they end up digging themselves into deeper holes. In developing its 2017 rules, the Consumer Financial Protection Bureau found that the payday loan industry made most of its profits off debt-trapped borrowers who, after taking out one loan, took out half a dozen or more in quick succession just to get back above water. Consumers who borrowed seven or more times in a year accounted for 90 percent of the fees the industry collected, the bureau reported in 2017, and those who borrowed 10 or more times accounted for 75 percent of the fees.
The new bureau argues that the 2017 rules were based on too little evidence, which strains credulity given the record the old bureau amassed over the nearly six years it spent developing them. The current bureau also contends that its predecessor misread the standards Congress set for finding a lending practice to be unfair or abusive. But its reading of the law is so crimped, it would be hard to find any practice unfair or abusive, no matter how predatory.
FROM AN EDITORIAL IN THE LOS ANGELES TIMES