WASHINGTON President Obama lauded the Consumer Financial Protection Bureau Thursday for cracking down on high interest rate, short-term loans while defending the agency against attempts to defang it.
The CFPB rolled out a plan earlier in the day that would create sweeping new rules for payday lenders by requiring that they verify borrowers are capable of repaying a loan, restricting the frequency loans could be extended and capping finance charges.
"The idea is pretty common sense: if you lend out money, you should first make sure that the borrower can afford to pay it back," Obama said, addressing students at a community college in Birmingham, Ala.
"As Americans, we believe there's nothing wrong with making a profit. But if you're making that profit by trapping hardworking Americans in a vicious cycle of debt, then you need to find a new way of doing business."
It marked one of the first times the president has discussed payday lending, which many consumer advocates view as a predatory kind of lending. But the president also used his remarks to praise the CFPB, the creation of which has become a key part of his legacy.
"This is just one more way America's new consumer watchdog is making sure more of your paycheck stays in your pocket," Obama said.
The president also defended the CFPB against attackers who believe the agency has too much power.
Congressional Republicans have sought to restructure the agency, and a freshly passed House budget bill would cut off the CFPB's access to funding from the Federal Reserve Board. Republicans are trying to make the agency subject to the Congressional appropriations process.
"It makes no sense that the Republican budget would make it harder for the CFPB to do its job, and allow Wall Street to go back to the kind of recklessness that led to the crisis in the first place," Obama said. "If Republicans in Congress send me a bill to unravel Wall Street reform, I will veto it."
According to a White House fact sheet, the average payday loan borrower is in debt for roughly 200 days a year and most loans are either rolled over or followed by another loan within two weeks.
The CFPB plan would require lenders verify a borrower's income, financial debts and credit history as part of the process to ensure they have the financial wherewithal to take out a loan. It would also reduce the frequency at which loans could be made by including a 60-day "cooling off period" between loans unless a borrower's finances improve and cap loans with terms less than 45-days at $500, among other things.