Payday Loans Given New Lease by Pending Regulatory Reforms
With Donald Trump in the White House, payday loans could be given a new lease on life by pending regulatory reforms. The game has changed regarding regulations in a number of sectors. At the start of his presidency, Trump announced that he would do a “big number on Dodd Frank.” This was the policy change that brought sweeping legislation to the financial industry.
President Obama called for it following the 2008 financial crisis, and it was finally passed in 2010. Along with enacting regulations against the traditional banking industry, legislation is also impacting alternative lenders.
Pending Regulatory Reforms Would Breathe New Life into Payday Loans
During one of his many speeches, Trump referred to Dodd Frank as “a disaster.” He has also claimed that the banking act is responsible for impeding growth because it makes it tougher for financial institutions to lend to small businesses and everyday consumers. Despite the president’s claims, new businesses in the country have grown steadily since 2010.
Forbes reports that Trump signed an executive order designed to cut back on the Dodd Frank Act dramatically. He said, “Today we are signing core principles for regulating the United States financial system.” Trump also said that he planned “to be cutting a lot out of Dodd Frank.” With this news, organizations that provide payday loans are surely experiencing relief.
So, What Did Trump Include in the Executive Order that Targets Dodd Frank?
Giving the lenders of payday loans reason to rejoice, Trump’s executive order targeting Dodd Frank lays groundwork that could lead to the act’s replacement. The executive order features broad principles designed to support economic growth. It also seeks to reduce federal regulations by requiring agencies to eliminate two current regulations for every new policy change introduced. In addition, the order places an annual cap on how much new regulations can cost.
Reuters reports that for the remainder of 2017, the cap requires lawmakers to offset the cost of creating more regulations by undoing current ones. This could help institutions that offer bad credit payday loans since legislators may decide against creating more rules for the industry.
Consumer groups are protesting the president’s intention to dial back regulations, contending that Trump’s executive orders will remove important public protections. In most cases, the White House’s Office of Management and Budget, or OMB, reviews major regulations. This process will continue under the new policy changes. However, some regulatory categories will be untouchable. For instance, legislation that deals with national security and the military will be exempt.
Jody Freeman, a Harvard Law School professor, pointed out that the new directive was “entirely unnecessary” due to similar regulatory action taken by past presidents. She said, “Even if it is fairly toothless in the end, it will be a weapon the OMB can use to harass agencies and slow regulation.” This may work to the benefit of those who offer bad credit payday loans.
An Attempt to Make Payday Loans a Thing of the Past
By establishing the Consumer Financial Protection Bureau, or CFPB, legislators enacted a regulatory body that potentially had the power to make payday loans a thing of the past. The Trump administration has expressed an interest in replacing CFPB leader Richard Cordray. If the president follows through, then this could neutralize the agency.
Would removing Cordray benefit the American people? Maybe, but just a few months ago, the CFPB found that Wells Fargo opened thousands of fraudulent credit card and savings accounts without customer consent. Some of the bank’s employees were fired for speaking out against the deception. The scandal caused the bank’s CEO, John Stumpf, to resign. It also resulted in a mass of regulatory investigations.
The CFPB has also fought against overcharging, engaging in improper foreclosure practices and bad credit payday loans that frequently leave the poor saddled with a mountain of debt. However, the Trump administration believes that the CFPB has regulatory overreach, resulting in businesses struggling to grow, including the lenders of payday loans.
Writing Regulations that are Better and More Efficient
Gary Cohn, the Economic Council Director to the White House, insinuated that he and Treasury Secretary Mnchin are ready to make changes to Freddie Mac and Fannie Mae. Cohn said, “I’m not sitting here saying we want to go back to the good old days.” But, he did suggest that the Trump administration would be able to write regulations that are better and more efficient.
He was also confident that looser restrictions would result in a self-regulating market, which is good news for the lenders of bad credit payday loans. The regulations put in place by the CFPB were threatening to crush the payday loan industry, making the Trump presidency a fortunate turn of events for these lenders.
Democrats Plan to Fight the President’s Executive Order
USA Today reports that key democrats are coming out against the president’s executive orders. Senate Minority Leader Charles Schumer said, “The president’s attempts to repeal Wall Street reform will be met with a democratic firewall in Congress.” Party leaders also pointed out that Trump and the Republicans will need to use legislation to make changes to Dodd Frank instead of executive action.
It’s also too early to tell whether the regulatory rollback will actually come to fruition. Even after the financial crisis caused by Wall Street, it took years of fighting to enact Dodd Frank. Along with this, the people called upon to write the reforms will be the current heads of a number of agencies appointed by President Obama. Because of this, changing the rules will likely be a slow going process, so the lenders of payday loans will need to be patient.
Janet Yellen, the Federal Reserve chair, will retain her position for another year. Thomas Curry is the Comptroller of the Currency, and he’ll be at his post until April while Martin Gruenberg, the Federal Deposit Insurance Corporation chair, has until November before his time expires. As far as the CFPB, Cordray has almost 16 months to go. With these people over important financial agencies, Trump’s executive orders are likely to experience a delay.
Is the Trump Presidency a Game Changer for the Lenders of Payday Loans?
With the Trump administration vowing to temper the Dodd Frank Act and the CFPB, bad credit payday loans seem to have received a lifeline. This may be good or bad for borrowers. While the CFPB was created to protect borrowers who are the most vulnerable financially, the agency failed to establish other borrowing options for people with bad credit. If lawmakers really want to help those who are at the bottom of the borrowing food chain, then they’ll find ways to inspire banks to lend to folks with bad credit.