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The Evolution Of Short Term Lending Under The Trump Administration

The situations seem to have improved now and it is likely that payday loans and short term loans will become less regulated under the President Trump administration. Recently, the house lawmakers have introduced a legislation that will eliminate the CFPB payday loan rule that affect lenders nationwide. They argue that the rule is causing problems for individuals and small businesses to take out the loans that they need. They will be using the Congressional Review Act as a defense to make their appeal.

The Congressional Review Act gives an individual the right to file a class action suit. It gives a limited time of 60 days for the lawmakers to repeal the rule in the Federal Register. The CFPB rule on the payday loan appeared in the Federal Register on the 17th of November. They decided to repeal the rule when more and more people start to criticize about the CFPB bureau. Some consumers fight back arguing that the CFPB has done them good by helping them to get back a total of $12 billions from the banks and other lenders.

The excuse that CFPB gives concerning the payday rule that they imposed is that they want to protect consumers from high interest loans. The payday rule will not come into effect until the middle of 2019. The rule was originally introduced in October by the CFPB when Richard Cordray is the director. Richard Cordray has already resigned in late November this year. The rule limits lenders to issue only 3 successive loans to an individual borrower. It also puts a responsibility on payday lenders to make sure that the borrowers they approve can meet their living expenses after paying the loan.

The CFPB argues that these loans have ultra high interest rate which is the main reason why the poor people are repeatedly trapped in the debt cycle. They claim that the payday loan charges an effective interest rate of 300% or more and the loan amount can add up fast if the borrower did not pay back on time.

However, the Republicans fight back by arguing that payday loan actually help many households to meet their budget. They claimed that the fee is less than the penalty fee of a bounce check for a $100 loan. The Republicans stated that no obstacle should be placed that deny the people their rights to take out short term loans to cover their expenses.

The appeal can face problem with the Senate because the arbitration rule needs a 50-50 vote to pass. Mulvaney, who is a critic of the CFPB, said, he couldn’t do much to stop the CFPB payday loan rule as an acting director. But, he believes that the Congressional Review Act has opened up possibilities for repealing the payday loan rule.