New York Times Editorial: Trump’s Payback for Payday Lenders

Key Takeaway: “But the Trump administration established from the start that it was more interested in rewarding the lending industry than protecting borrowers. Mick Mulvaney, as the bureau’s acting director, sided with the lenders last year when they went to court to block the regulations. The bureau’s new director, Kathleen Kraninger, has now proposed hollowing out nearly all of the meaningful requirements in the rules — including the ability-to-pay requirement.”


New York Times Editorial: Trump’s Payback for Payday Lenders


By The Editorial Board


The federal Consumer Financial Protection Bureau betrayed financially vulnerable Americans last week by proposing to gut rules conceived during the Obama era that shield borrowers from predatory loans carrying interest rates of 400 percent or more. The bureau’s proposal is based on a legally dubious rationale that will surely be challenged in federal court. The agency’s abdication of its mandate to protect consumers underscores the need for state usury laws, which have passed in 16 states and offer the surest path to curtailing debt-trap lending.


Payday lenders promote “easy” loans for workers who run short of cash between paychecks and who typically promise to repay the debt within two weeks. But voluminous data collected by the consumer protection bureau showed that the industry’s business model — in which a $500 loan could cost a borrower $75 or more in interest just two weeks later — was built on the presumption that customers would be unable to pay at the appointed time and would be forced to run up the tab by borrowing again.


A 2014 bureau study of 12 million similar loans found that over 60 percent went to borrowers who took out seven or more loans in a row. In fact, a majority of loans went to people who renewed so many times that they ended up paying more in fees than the amount of money they originally borrowed. Among those trapped in this debilitating cycle were many people scrimping by on disability income.