New Payday Lending Rules and Consumer Bankruptcy

Efforts to address harmful consumer practices through the Consumer Financial Protection Bureau (CFPB) appear to have stagnated under the Trump administration. According to a recent report from NPR Illinois, the new head of the CFPB, former Republic Rep. Mick Mulvaney, there are changes to the Bureau’s work to address payday lending rules and consumer injuries. More specifically, “under Mulvaney, the CFPB has put on hold a rule that would restrict payday lenders and their high-interest-rate loans,” according to the report. In addition, the CFPB has not dropped a lawsuit that sought to hold accountable payday lenders who were charging 900% interest rates.
What could the shift at the CFPB mean for consumer bankruptcy with regard to payday loans?
Payday Loan Rule and the CFPB
What is the payday loan rule that Mulvaney has decided to put on hold at the CFPB? The rule would require lenders to set interest rates and fees in such a way as to “make sure people can afford to pay the loans back.” The rule was supposed to be phased in starting in January 2018, but that is no longer happening.
If you are not familiar with payday loans, you might be asking: What is the problem with a payday loan? It could be possible that someone could repay a loan like this on time, right? According to Christopher Peterson, a professor at the University of Utah College of Law, payday loans are a significant problem for consumers because “one payday loan often leads to another payday loan and so on into a debt trap.” The average borrower of payday loans ends up with eight of them per year, while many are taking out more—up to 10 or 15 payday loans.
These loans have extremely high interest rates. Indeed, the APR is often 200% or 300% of the loan, and in some cases the interest rates can be even higher. In numerous cases, too, payday loan lenders withdraw funds directly from the borrower’s checking account, which can add additional overdraft fees for the borrower. To put that interest rate in perspective, over the course of a year, a payday loan for $5,000 could result in interest payments of $10,000 or more.
Politics of Mulvaney’s Appointment to the CFPB
Many consumer protection advocates are angry about the appointment of Mulvaney to the CFPB. Indeed, NPR Illinois reports that Mulvaney previously introduced legislation designed to eradicate the CFPB, calling the Bureau a “sick, sad joke.” Moreover, the report indicates that Mulvaney took campaign contributions from payday lenders—more than $60,000—suggesting that he does not have the interests of consumers at heart.
In most cases, consumers who file for Chapter 7 bankruptcy can be eligible to have payday loans discharged. If the payday loan rule is done away with at the CFPB, it is possible that more consumers will be seeking bankruptcy protection.
Contact a Bankruptcy Lawyer in Oak Park
Do you have questions about payday loans, bankruptcy, and consumer protection? An experienced Oak Park bankruptcy attorney can speak with you today. Contact the Emerson Law Firm for more information.
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