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The New Loan Sharks

The payday lending industry has been built on borrowers who take out loans of a few hundred dollars that end up costing thousands by the time they're are paid off. Regulation, which is split between federal and state governments, is often not equal to the task of preventing these businesses from abusing or defrauding their customers.


 The Consumer Financial Protection Administration (CFPB), a federal agency created in 2011 in response to the 2008 financial crisis, was designed to regulate these and other consumer loans. On October 5, 2017, the CFPB and former director Richard Cordray released a long-awaited guidance on payday loans that built on the Office of the Comptroller of the Currency's 2013 guidance for banks that made nearly identical loans. It recommended that these loans, bearing triple-digit interest rates and widely regarded as predatory, should not be made without determining the borrowers' ability to repay them, something that lenders typically ignore. A day later, acting OCC comptroller Keith Noreika rescinded the OCC's 2013 guidance.   


The OCC stated in a press release that because of the OCC's 2013 guidance, banks were now subject to "inconsistent regulator direction and burden" due to the CFPB's new payday rule. The CFPB's own ruling was used as a mechanism that allows banks to resume making these predatory loans. The Norieka ruling went into effect immediately. The CFPB ruling would not have gone into effect for 21 months. Under the Trump administration, the CFPB has begun to roll back regulation of store front and internet payday loans the CFPB's 2017 guidance sought to address.