U.S. Sen. Mark Warner (D-VA) pressed the Director of the Consumer Financial Protection Bureau, Kathy Kraninger, at a Tuesday Senate hearing on the Trump Administration’s decision to rescind a rule that would have protected Virginians from predatory lending practices.
The CFPB’s payday lending rule would have required payday lenders to determine upfront whether or not a borrower can afford to pay back a loan without having to take out another loan – an important step in reining in predatory business practices by payday lenders nationwide that are designed to exploit the financial hardships facing millions of hardworking families. The payday lending rule was first proposed under the Obama Administration and finalized in 2017 after more than five years of study and reviewing 1 million public comments. However, last month, Kraninger – President Trump’s choice to lead the CFPB – proposed changes that would effectively gut the rule, leaving consumers exposed to predatory, high interest rate loans. Warner pressed Kraninger to explain that decision.
“I think you made a dreadful error in rescinding the payday lending rule. What I am trying to also understand is that the agency spent five years doing research into this rule. And I can remember when the CFPB issued this rule back in 2017, and opponents of the rule at that moment in time, said ‘Oh my God!’ I think it was, 1690 pages, ‘This is way too much information! Way too much data!’ Now, when you rescind [the rule], you are basically throwing all that data and all that information out, for this new approach. What has factually changed that undermined the five years of data and research that went into the original payday lending rule that has allowed you to make this determination?” Warner pressed Kraninger.
Payday lenders typically offer small loans to borrowers who are required to pay them back in a short amount of time. The loans can come with annual interest rates of 300 percent or more, according to the CFPB’s own data. More than 80 percent of those loans are rolled over into another loan within two weeks, meaning the borrower is adding to their debt before they’ve paid off the initial loan.
Warner told Kraninger at today’s hearing, “I respectfully remember how long this rule took to put in place. We remember how much research was done. I don’t believe you’ve got a factual basis. I think this was a politically-driven decision. And I’m deeply concerned by your decision” to rescind the payday lending rule.
Congress created the CFPB to protect Americans from unfair, deceptive and abusive lending practices. Predatory lenders often target hardworking borrowers who find themselves in need of quick cash – often for things like necessary car repairs or medical emergencies – by charging them excessive interest rates and hidden fees that trap them in long-term cycles of debt. Nearly 12 million Americans use payday loans each year, incurring more than $9 billion annually in fees.
This is not the first time Warner has raised concerns about the Trump Administration rolling back the payday lending rule. Last April, in a hearing before the Senate Banking Committee, Warner pressed then-Acting Director of the CFPB, Mick Mulvaney, not to undo the rule. Sen. Warner also previously wrote to Mulvaney, urging the Administration not to repeal the payday lending rule.
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