WASHINGTON (Reuters) - Lobbyists and Republican lawmakers are gearing up for battle over a new U.S. regulation that is likely to dent profits in the $6 billion short-term, high-interest “payday” loan industry.
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