CFPB signals plan to kill payday rule

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The Consumer Financial Protection Bureau said Tuesday that it plans to reopen its payday lending rule, issuing the announcement on the same day that the rule — written by the bureau's previous leadership — technically went into effect.

"The bureau intends to engage in a rulemaking process so that the bureau may reconsider the payday rule," the CFPB said in a terse, three-paragraph press release.

Although details are lacking about how the consumer agency might rewrite or kill the rule, the latest move is another illustration of the sea change since former CFPB Director Richard Cordray stepped down in November and was succeeded by acting Director Mick Mulvaney, the White House budget director who had strongly criticized the bureau in the past. (Mulvaney was not quoted or mentioned in the press release.)

The small-dollar payday rule, which was finalized in October under Cordray, requires lenders to determine a borrower's ability to repay a short-term loan of 45 days or less.

Tuesday's effective date codifies the rule in the Code of Federal Regulations. By April of this year, payday and installment lenders must register their information systems for compliance with the rule. However, lenders have until August 2019 to comply with tough new underwriting guidelines.

The CFPB said it would offer waivers to payday and installment lenders that are struggling to meet the April 2018 deadline to register.

"Recognizing that this preliminary application deadline might cause some entities to engage in work in preparing an application to become a [registered information system], the bureau will entertain waiver requests from any potential applicant,” the CFPB said.

Legal experts said doubts about the rule's future, despite it already being in effect, could cause logistical uncertainty for companies seeking a waiver.

"This will create all sorts of questions regarding waiver eligibility and what it means for industry participants 'waiting' while the rule is on the books," said Jennifer Janeira Nagle, a partner at K&L Gates in Boston.

Some Democrats objected to the CFPB's move, calling it a mistake.

"The CFPB payday lending rule is simple and effective: if the borrower can’t afford to pay back the loan, the lender can’t make the loan," Sen. Mark Warner, D-Va., said on Twitter. "This decision to undermine it is bad for consumers."

Meanwhile, lawmakers have introduced legislation to repeal the payday lending rule using the Congressional Review Act. Congress has 60 days after a regulation is posted to block it.

Payday lenders have said the rule would eliminate most payday loans because the ability-to-repay requirement would make short-term loans too expensive.

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Payday lending Law and regulation Compliance Mick Mulvaney CFPB