What do you think? Leave a respectful comment.

Consumers may lose protections in proposed payday lending changes

In a major win for the payday lending industry which gives quick loans at exorbitant interest rates, the Consumer Financial Protection Bureau is proposing changes to regulations that protect borrowers from being trapped in long-term debt. Ken Sweet, Associated Press’ business reporter, joins Hari Sreenivasan for more.

Read the Full Transcript

  • Hari Sreenivasan:

    Payday lending. It's an enormous industry that charges exorbitant interest rates for quick loans — usually to people with poor credit ratings. Last week, the Consumer Financial Protection Bureau moved to abolish some of the regulations designed to protect borrowers. I spoke with Associated Press business reporter Ken Sweet about payday lending and his reporting on possible changes to consumer protection regulations.

  • Ken Sweet:

    The main crucial part of the rules that's being rolled back was basically called the 'ability to repay' rules that the Consumer Financial Protection Bureau rolled out. Basically, it said that if you are a payday lender you had to figure out whether the customer who was coming into your store could actually repay the loan that you were giving to them, which sounds really basic but that was the crucial part of that loan.

  • Hari Sreenivasan:

    Because payday lenders make more money when somebody can't pay that back in time and then what, they extend the loan?

  • Ken Sweet:

    Correct. The customers of the payday lending industry are largely poor, lower income people who desperately need money. So they're high risk borrowers. But the way that the industry works is that you borrow a two week loan and then you go in and you say well I can't repay this $400 loan, I'd like to renew it. And you pay an extra fee and then you renew that a second time or third time. And oftentimes, you get loans that go on for six months maybe even a year.

  • Hari Sreenivasan:

    Give us some scale of what the population is, how many people actually take these loans, why is it such a big deal?

  • Ken Sweet:

    12 million Americans will use a payday loan in this year and they will rack up about $ billion worth of fees. There are several states that ban payday lending but there are 16,000 payday lending stores across the country, mostly located in the south and in the west. It's a very large industry that focuses mostly on lending very short term cash to desperate people.

  • Hari Sreenivasan:

    And you know I'm looking at articles. Says 'financial watchdog to gut most of its payday lending rules.' How long did the rules take to put into place in the first place?

  • Ken Sweet:

    This was something the CFPB spent most of its existence working on. This was kind of the thing that previous CFPB permanent director, Richard Cordray dominated his tenure while he was there — from when he started told that basically the month he ended his tenure. This was the thing that the CFPB worked on.

  • Hari Sreenivasan:

    And Mick Mulvaney came in and he early sort of signalled that this was somebody that he wanted to rollback.

  • Ken Sweet:

    This was one of the first priorities of Mick Mulvaney when he came in. In January he announced that he was going to revisit the entire rules. It was announced before any other project of his.

  • Hari Sreenivasan:

    Is there any reason to believe that he knew this coming into the job? I mean has he been funded by this industry?

  • Ken Sweet:

    The main criticism that was thrown at Mick Mulvaney was that he took tens of thousands of dollars oof contributions from payday lending companies when he was a congressman before he became a budget director at the White House. Close to $30,000.

  • Hari Sreenivasan:

    You know one of the things that comes up in your article — you said, 'the Community Financial Services Association of America, a payday lending group is holding its annual conference in March at Trump's Doral Golf Club in Miami. It held its conference there last year too.'

  • Ken Sweet:

    So there's been a lot of stories written about the conflict of interest that's going on with the Trump White House and this has been, this is one piece of that, which is that the payday lending industry basically bought a luxury conference at one of Trump's properties and now they have people over there who are now determining whether the payday lending industry should be regulated or not.

  • Hari Sreenivasan:

    What happens next? usually These kinds of rule changes have a public comment period.

  • Ken Sweet:

    Correct. So for the next 90 days the CFPB will take comment on this. But legal experts who have stepped in on this have said that it's going to be very difficult for the CFPB to justify such an abrupt about-face on these rules. You know, just less than 18 months ago, the CFPB was under a position of the payday lending industry needed to be regulated. And now they're taking the exact opposite position.

  • Hari Sreenivasan:

    All right Ken Sweet of The Associated Press, thanks so much.

  • Ken Sweet:

    Thank you.

    This transcript has been edited to correct Ken Sweet's name.

Listen to this Segment

The Latest