The Consumer Finance Protection Bureau (CFPB) announced a long-awaited crackdown on payday loans Thursday, angering critics who say it could kill the payday loan industry and is a politically motivated move by Director Richard Cordray — rumored to be eyeing a run in the Ohio gubernatorial race.
The rule aims to stop “payday debt traps” by requiring lenders to determine if the borrowers can afford to repay their loans, as well as limiting the practice whereby lenders debit payments from bank accounts, something the agency says can lead to fees and account closures from financially struggling Americans.
Such short-term loans, commonly called “payday loans,” are normally short amounts of cash to help struggling borrowers pay bills through to their next paycheck. But the CFPB notes that the APRs on such rates are normally extremely high — leading to a personal debt crisis if the loan is paid back swiftly.
“The CFPB’s new rule puts a stop to the payday debt traps that have plagued communities across the country,” Cordray said in a statement. “Too often, borrowers who need quick cash end up trapped in loans they can’t afford. The rule’s common sense ability-to-repay protections prevent lenders from succeeding by setting up borrowers to fail.”
Republicans and free marketeers have criticized the rule for putting an undue burden on payday loan companies, something they say will limit low-income Americans’ ability to get urgent money with which to pay bills.
“These restrictions may seem well-intended, but they in effect allow loans only to unprofitable customers with good credit and prevent lenders from taking recourse against borrowers who don’t pay their bills,” the Wall Street Journal editorial board wrote in a response to the move Friday, adding, “As a result, many Americans will lose access to an important source of emergency cash.”
Republicans have bristled at the CFPB since its inception as part of the 2010 Dodd-Frank financial reform bill, have claimed the agency unconstitutional, and have called on President Trump to fire Cordray, accusing him of running a “rogue federal agency.”
Adding to the controversy are the maneuverings and meetings from Cordray that indicate he is lining up for a run in the Ohio gubernatorial race. During the summer, he met with a range of left-wing groups, and opponents have claimed Cordray has rushed through the rule so as to line up with his political schedule. He dodged answering questions about his political future during a Labor Day picnic in Ohio this month.
Dennis Shaul, CEO of the Community Financial Services Association of America (CFSA), said in a statement,
The questions about Director Cordray’s intentions and ambitions have created a cloud of suspicion over this rule. In particular, the timing of the rule raises questions about whether it was hastily issued to fit an artificial timetable and all the Director’s recent actions at the Bureau raise questions.
Congressional Republicans have asked for an investigation as to whether Cordray has violated the Hatch Act with his political dealings. Congress can overturn the ruling, although it is not yet clear if it will.
In its op-ed, the Journal renewed the call for President Trump to fire Cordray, as the White House had reportedly once been considering, writing, “Mr. Trump may be loath to make Mr. Cordray a progressive martyr by firing him. But his reluctance has allowed the director to do significant economic harm with the pay-day rule and ban on arbitration class-action waivers, which Senate Republicans are unlikely to overturn under the Congressional Review Act.”
Adam Shaw is a Breitbart News politics reporter based in New York. Follow Adam on Twitter: @AdamShawNY.