Financial watchdog plans to scrap payday lending rules

/ CBS/AP

Who is Kathy Kraninger?

New York — The nation's federal financial watchdog said Wednesday that it plans to abolish most of its critical consumer protections governing payday lenders.

The move is a major win for the payday lending industry, which argued the government's regulations could kill off a large chunk of its business. It's also a big loss for consumer groups, who say payday lenders exploit the poor and disadvantaged with loans that have annual interest rates as much as 400 percent.

"The CFPB was supposed to protect consumers. Unfortunately, the agency is now working to protect payday lenders," said Christopher Peterson, director of financial services at the Consumer Federation of America and a law professor at the University of Utah, in a statement.

Dismantling protections

The cornerstone of the regulations was a requirement that lenders make sure borrowers could afford to repay a payday loan without being stuck in a cycle of debt, a standard known as "ability to repay." This standard would be eliminated under the new rules.

Critics of the payday lending industry have argued that without these underwriting standards, the CFPB's new regulations are effectively toothless. The main criticism of the payday lending industry was that many borrowers would take months to repay a loan that was originally designed only to last a couple of weeks.

"This proposal is not a tweak to the existing rule … it's a complete dismantling of the consumer protections (the bureau) finalized in 2017," said Alex Horowitz, a researcher with Pew Charitable Trusts, a think tank whose research on the industry was relied on heavily by the bureau when the original rules were unveiled a year and a half ago.

Feds introduce new rules for payday loans

The average annual percentage rate on payday loans is nearly 400 percent, which comes to $15 for every $100 borrowed, according to Pew. But lenders in states without a rate cap can charge upwards of 1,000 percent interest on a loan.

Every year, roughly 12 million people in the U.S. borrow a total of $50 billion, spending some $7 billion on interest and fees, according to The Pew Charitable Trusts.

Under new management

The announcement was the first rollback of regulations under the CFPB's new director, Kathy Kraninger, who took over the bureau late last year. Mick Mulvaney, who was appointed by President Donald Trump's as acting director of the bureau in late 2017, announced a year ago that the bureau was intending to revisit the rules.

Kraninger, who before being nominated by President Donald Trump in 2018 to lead the agency, was a relatively unknown mid-level bureaucrat at the Office of Management and Budget, and she has drawn criticism for lacking experience in financial services. Kraninger also previously was the Clerk for the Senate Appropriations Subcommittee on Homeland Security.

Under President Obama, the CFPB spent close to five years working on a process to finally nationalize the regulation of the payday lending industry, which is mostly regulated at the state level. The bureau started the process back in 2012 and its finalized rules were finished in late 2017. It was the last major pieces of regulation done under Richard Cordray, the bureau's first permanent director, before he left the bureau.

The CFPB's proposal is "a bad move that will hurt the hardest-hit consumers," Cordray wrote on Twitter.

CFPB did propose keeping one part of the payday lending regulations: a ban on the industry from making multiple debits on a borrower's bank account, which consumer advocates argued caused borrowers hardship through overdraft fees. In a statement, one payday lending industry group felt the CFPB's repeal did not go far enough, and would have wanted the regulations over debits repealed as well.

The proposed new rules are subject to a 90-day comment period by the public. The proposed changes are almost certain to face legal challenges, since the bureau is taking a radical departure from its previous position.

First published on February 6, 2019

© 2019 CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.

Financial watchdog plans to scrap payday lending rules

Consumer advocates fear that federal agency's move to eliminate regulations will expose borrowers to risk

updated 4M ago

2019 Grammys: How to stream online or watch on TV

Alicia Keys will host the 61st annual Grammy Awards from Los Angeles on Sunday, Feb. 10 at 8 p.m. ET on CBS

updated 6M ago

Zoo offers revenge on your ex for Valentine’s Day

What better way to get revenge on your ex than by naming a cockroach after them and feeding it to a meerkat?

updated 33M ago

Virginia AG admits to dressing in blackface as a student

Mark Herring dressed as the rapper Kurtis Blow as a 19-year-old college student

1H ago

Trump says seizure of "100 percent" of ISIS territory should be announced soon

The president said there will always be "sick" and "demented" people, and ISIS will still likely hold "tiny sections"

updated 29M ago

Virginia AG admits to dressing in blackface as a student

Mark Herring dressed as the rapper Kurtis Blow as a 19-year-old college student

1H ago

Trump says seizure of "100 percent" of ISIS territory should be announced soon

The president said there will always be "sick" and "demented" people, and ISIS will still likely hold "tiny sections"

updated 29M ago

Woman details alleged sexual assault by Virginia lieutenant governor

Virginia Lt. Gov. Justin Fairfax has repeatedly denied allegations that he sexually assaulted a woman in 2004

updated 31M ago

Trump's remarks on probes are “nonstarter” says Adam Schiff

Schiff announced new parameters of the panel's Democrat-led Russia investigation

1H ago

Without more federal funds, 1.4M Puerto Ricans will face food aid cuts

"This isn't money that Puerto Rico is using for some vanity project. … It's literally money for the most basic of needs"

1H ago

Earth could be headed for warmest period on record

The next five years could be even hotter than 2018, which was already near record territory

updated 26M ago

VP: "No question" U.S. was headed toward North Korea confrontation

President Trump will meet with Kim Jong Un for a second summit later this month

3H ago

VP: U.S. will be "prepared to strike back at ISIS" after withdrawal

In December, Trump claimed ISIS was defeated and announced a plan to withdraw troops from Syria

3H ago

Ex-CIA chief's biggest concern about Trump-Kim summit

President Trump has tried to downplay North Korea's national security threat, despite continued efforts to advance their nuclear program

4H ago

Could Venezuela showdown lead to one between U.S. and Cuba?

Vicki Huddleston said the two countries' previous leaders, Fidel Castro in Cuba and Hugo Chavez in Venezuela, forged a close relationship

4H ago

2019 Grammys: How to stream online or watch on TV

Alicia Keys will host the 61st annual Grammy Awards from Los Angeles on Sunday, Feb. 10 at 8 p.m. ET on CBS

updated 6M ago

"NCIS" teases return of beloved character

The teaser trailer dropped during the Super Bowl, but fans will have to wait until February 12 to see if Ziva is really coming back

1H ago

Bradley Cooper "embarrassed" about Oscars snub

"A Star is Born" received eight nominations, but Cooper is disappointed about the one he didn't get – best director

4H ago

R. Kelly deletes tweet about tour

Some Twitter users expressed anger over the tour announcement – and then it vanished

5H ago

More than 1M Patriots fans celebrate team's 6th Super Bowl win

New England Patriots​ and more than 1 million fans celebrated the team's victory in a celebratory parade down the streets of Boston

20H ago

Earth could be headed for warmest period on record

The next five years could be even hotter than 2018, which was already near record territory

updated 26M ago

Snap reports record revenues, but struggles to add users

Struggling social media company gets a badly needed boost in growth, while its losses narrowed

22H ago

Dinosaur that used spiny back to defend itself found in Patagonia

The new species of dicraeosauridae, christened Bajadasaurus pronuspinax, was revealed in scientific journal Nature

Feb 5

Facebook messenger rolls out unsend feature

After Facebook came under fire for letting Mark Zuckerberg alter message history, it gave all users an "unsend" option

Feb 5

What happened when I asked Alexa and Google Assistant for my data

As smart home devices become increasingly popular, concerns about data collection aren't going away

22H ago

New moms hit especially hard by opioid crisis

Research shows new mothers with opioid use disorder are at a higher of overdose due to lack of resources, shame and stigma

2H ago

Pet owners report dog deaths from recalled food

While one company is facing rash of unhappy consumers, it's one of at least 10 that distributed potentially toxic food

1H ago

Dad travels to Canada for son's medicine that would cost $53K in U.S.

In his State of the Union address, President Trump said his next major priority is lowering the cost of health care and prescription drugs

4H ago

Trump promises to "defeat AIDS." His critics are skeptical

President Donald Trump announced that he planned to eradicate HIV/AIDS during his State of the Union address Tuesday night

updated 0M ago

Study reveals top reason people use medical marijuana

More than 30 states now allow marijuana for dozens of health problems if a doctor approves

Feb 5

Financial watchdog plans to scrap payday lending rules

Consumer advocates fear that federal agency's move to eliminate regulations will expose borrowers to risk

updated 4M ago

Fisher-Price recalls Barbie Campers sold at Walmart due to injury risk

About 44,000 of the pint-sized pink vehicles need repair as wheels may continue to run after foot pedal released

updated 52M ago

The Green New Deal is about to get real

Alexandria Ocasio-Cortez says rewiring the nation's energy system can create millions of jobs while helping the planet

2H ago

Pet owners report dog deaths from recalled food

While one company is facing rash of unhappy consumers, it's one of at least 10 that distributed potentially toxic food

1H ago

Latest U.S. trade gap falls on China slowdown

America's trade deficit falls to lowest level since June, as global sales from China — from cars to cellphones — slow

5H ago

Man accused of kidnapping Jayme Closs appears in court

Jake Patterson faced a judge in person for the first time

3H ago

Suicide texting trial: The case against Michelle Carter in the death of Conrad Roy

The groundbreaking trial of a crime of the digital age — should a young woman go to prison for sending texts to a friend who took his own life?

4H ago

Officer won’t face charges in fatal mall shooting

Family of EJ Bradford, Jr. describes him as a "hero," decries "cover up" by Alabama attorney general

4H ago

Sandusky to be re-sentenced for child molestation conviction

Jerry Sandusky​ lost a bid for a new trial Tuesday, but a Pennsylvania appeals court ordered him to be re-sentenced for a 45-count child molestation conviction

23H ago

Nurse accused of assaulting patient pleads not guilty

Nathan Sutherland is accused of raping a patient at Hacienda HealthCare

Feb 5