CFPB loosens payday loan guardrails

The CFPB this week released a final payday lending rule, which rescinds a 2017 regulation under Obama-appointed CFPB Director Richard Cordray that required payday lenders to assess borrowers’ ability to repay. It also set forth restrictions on reborrowing.

Why should we care?
The reversal of the ability to pay provisions, according to CFPB Director Kathleen Kraninger, preserves competition and ensures consumer access to credit. Elimination of the prior underwriting provisions could save the payday lending industry an estimated $7 billion a year. Critics note that the previous regulation sought to protect consumers from triple-digit APRs and cycles of reborrowing. Time will tell if the new regulation results in significant growth of payday loans, an industry that generates tens of billions in revenue for providers each year. The industry also faces competition from a growing number of digital earned wage access providers that are experiencing growth during the pandemic.