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The
Consumer Financial Protection Bureau (CFPB) is expected in
coming days to release a long-anticipated rule curbing payday
lending, now that a final review by other regulatory agencies
has concluded, three people familiar with the matter said.
The rule pits the country's consumer financial watchdog against
payday lenders who say the new regulation will wipe out much of
their established industry, currently overseen by the states,
and push poor and rural customers to use illegal loan sharks.
"We are likely, on our part, to take the appropriate actions
that we can to see this rule never becomes effective, and that
includes a possible lawsuit," said Dennis Shaul, chief executive
of the Community Financial Services Association of America
(CFSA), a payday lending trade group.
The group says the rule-drafting process was flawed because the
agency did not listen to borrowers or properly process comment
letters - an argument that could form the basis of potential
litigation. The CFPB has declined to comment on its procedure or
on the final rule, but public records show it closely followed
the law throughout the rulemaking process.
Meanwhile, President Donald Trump's Republican party, which says
the CFPB goes too far in its regulations, wants to undo the rule
through legislation.
Recently, Republicans in the House of Representatives added a
"rider," or amendment, to a spending bill banning the CFPB from
regulating the payday loan industry. They are also poised to
repeal the rule under the Congressional Review Act and bar the
CFPB from ever drafting a similar regulation, according to aides
and lobbyists.
Borrowers take out the small, short-term loans to cover
emergencies and traditionally repay them with their next
paychecks. Because the loans can carry interest rates as high as
390 percent, borrowers can become trapped in devastating cycles
of taking out new loans to pay outstanding ones, the CFPB said.
The agency began drafting the rule last summer to end this "debt
trap," by requiring lenders to conduct background checks showing
borrowers can afford the loans and to limit the number of loans
made to a single borrower.
"The rule that we're expecting will do a lot to combat the debt
cycle," said Karl Frisch, head of Allied Progress, a consumer
advocacy group.
(Reporting by Lisa Lambert; Editing by Michelle Price and Andrea
Ricci)
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