There could be major changes on personal loans in 2017 following the signing of the executive order by President Donald Trump recently. The purpose of the executive order is to reduce the powers of Dodd Frank Act. Trump said that Dodd Frank is an obstacle to the economy that increases the difficulties for consumers to obtain loans from the banks. Dodd Frank Act will be replaced if the order managed to get approval from the Congress. Dodd Frank Act founded the Consumer Financial Protection Bureau. The signing of the executive order will provide the foundation for removing the current regulations the CFPB placed on short term loans.
The Consumer Financial Protection Bureau was set up to regulate banks and financial institutions. The CFPB claimed that payday loans are trap for poor people who are in need of money because of the extremely high interest rate. The CFPB said that the interest rate of payday loan is about 260% – 789% which is significantly higher compared to the credit card interest rate which is in between 12% – 30%. Last year, the CFPB has proposed rules to put restrictions on the payday loan as well as other types of short terms personal loans. The rules will force lenders to do detailed research on whether borrowers have the funds to pay the debt after deducting the living expenses from their income. The rule is not yet enacted up until now. Since the payday loan rule proposal, the CFPB has carried out a lot of actions against payday lenders. For example, it has ordered ACE Cash Express to refund $5 millions because it says on its sites that consumers who are unable to pay their loans must obtain another short term loans.
Many Republican leaders claimed that CFPB has gone too far and the regulations it put forward are flawed. The CFPB is too enthusiastic about defending the poor by imposing unnecessary regulations which has caused many businesses to be hesitant about expanding. The hesitance of businesses in expanding can slow down the growth of the economy. Ever since its establishments, the CFPB has not done much good to the economy but it has caused a lot of damages to the credit unions and banks instead.
President Trump has been urged by the Republicans to quickly take action by removing Director Richard Corday from CFPB. It is claimed that Trump administration wants director Corday to be fired as soon as possible. If the executive order succeeded, there will be a lot of regulatory relief on the banks and financial institutions. It is speculated that the regulatory relief will increase the economy growth by allowing banks to open more branches and offers more types of loan products.