The Obama administration has too often crushed legal industries that are not politically trendy, for-profit universities, for example. So it’s good news that the Consumer Financial Protection Bureau is unraveling parts of an unnecessarily punitive rule on payday lenders, although a wholesale rewrite would be preferable.
The office put the pay rule in place under Richard Cordray, the former manager best known for refusing to be fired. Its aim was to bankrupt lenders who offer short-term loans at high interest rates to clients in a pinch. By the bureau’s own estimate, underwriting requirements, payment rules and other restrictions would have all but wiped out the industry.
Mr. Cordray and his friends pictured themselves as advocates for the poor who fall prey to loan sharks. Still, about 40% of Americans say they can’t cover an unexpected $ 400 expense, according to a Federal Reserve survey. Many cannot get bank credit, and a payday extinction would force them to reject a check or resort to loan sharks.
The office did not consider the alternatives because the outcome was predetermined. An example: The CFPB rule relied heavily on a single study of a payday lender in five states by Columbia professor Ronald Mann. Mr Mann challenged the bureau’s qualification of its findings and said its results showed that those who take out payday loans tend to be realistic about when they will be able to repay.
The CFPB, under new leadership, is now poised to repeal some of the most pernicious parts of the rule, namely the underwriting requirements that the bureau’s analysis would have disqualified two-thirds of current payday borrowers. The agency leaves rules in place that limit how lenders can collect, though they don’t make any more sense than the rest of the rule. A provision that limits the number of times a lender can try to charge a borrower treats debit cards the same way as checks, although the latter can come with exorbitant fees, unlike debit cards.
