CFPB to Restore Firm Position on Payday Lenders

The Consumer Financial Protection Bureau is giving its clearest signal to date that a 2020 regulation easing standards for payday lenders is in jeopardy, despite efforts already by the industry to implement the rule. Trump administration.

CFPB Acting Director Dave Uejio – appointed by the Biden administration to lead the agency following Kathy Kraninger’s resignation – made his strongest comments yet on the 2020 rule, which eliminated the requirements underwriting for low dollar lenders.

Uejio said in a blog post that the new management of the office endorse the “repayment capacity” standards, originally established in a previous rule in 2017 that was unrolled by Kraninger, noting that the agency will reinstate them.

But he went even further by suggesting that the CFPB consider cracking down on payday lenders and auto title lenders by using its enforcement power under the Dodd-Frank Act to punish companies that violate the ban. federal “unfair, deceptive or abusive acts or practices.” ”

“The CFPB is keenly aware of the harm done to consumers in the low dollar lending market and is particularly concerned about the business model of any lender that depends on the inability of consumers to repay their loans,” Uejio said. “Years of research by the CFPB have revealed that the vast majority of the industry’s income came from consumers who could not afford to repay their loans, with most of the short-term loans being chains of 10 or more loans. more.”

Some experts have said that until the bureau takes further action, payday and auto lenders can still rely on regulations from last year that waived repayment capacity requirements on loans from 45 days or less.

Bloomberg News

Uejio made the comments last week, just a day after the CFPB filed a motion accompanying a lawsuit challenging the 2020 payday rule. Although the agency appears to intend to overturn the rule, the motion of the CFPB argued that the plaintiff, the National Nonprofit Association of Latino Community Asset Builders, did not have standing to sue because its members are not regulated by the CFPB.

Explaining why the CFPB filed the motion to dismiss, Uejio pointed out that the office continues to push for the repayment capacity standard in underwriting.

“The Bureau had a legal obligation to respond to the lawsuit,” Uejio said. “The Bureau’s filing should not be taken as an indication that the Bureau is satisfied with the status quo in this market. Rather, the Bureau believes that the damage identified by the 2017 rule still exists and will use the authority provided by Congress to address it, including through rigorous oversight, oversight, enforcement and, where appropriate, regulation of the law. Marlet. “

Some experts have said that until the bureau takes further action, payday and auto lenders can still rely on regulations from last year that waived repayment capacity requirements on loans from 45 days or less.

“The industry relies on validly enacted regulations, including the 2020 repeal, and has the right to organize its affairs in accordance with those regulations and not be intimidated by a director’s blog entries. acting, “said Hilary Miller, a Greenwich, Conn. , lawyer representing payday lenders and former president of the Payday Loan Bar Association.

The CFPB can also use its enforcement power to aggressively prosecute UDAAP violations in areas other than underwriting, such as marketing, debt collection, or dealing with borrowers with poor English skills.

Others have suggested that Uejio is conveying that the CFPB may not need to reinstate the 2017 salary rule to go after bad actors.

“It is a signal that the [2017] The rule may no longer exist, but they don’t need it and they can still investigate and take enforcement action, ”said Allen Denson, partner at Venable. “I think that’s a pretty important statement.

The CFPB’s review manual for short-term, low-cost lenders includes a section on so-called sustained use, said Denson, who refers to repeat borrowing of payday loans.

Years of CFPB research confirmed the bureau’s view that repeated re-borrowing of 10 or more loans by a single consumer was detrimental, Uejio said.

“One in five payday loans and one in three vehicle title loans have ended in default, even including periods of re-borrowing,” Uejio wrote in the three paragraph blog. “And one in five vehicle title loan borrowers ended up having their car or truck confiscated by the lender. It is a real evil for real people.

Payday lenders have been pushing hard to repeal the 2017 rule arguing that the rule would have wiped out at least 55% of the income of lenders who offer loans of 45 days or less. Industry trade groups have claimed the CFPB, led by Obama-appointed director Richard Cordray, is trying to push the majority of payday lenders out of business and leave cash-strapped consumers without access to credit .

The overturning of the 2020 Trump-era payday rule is further complicated by an ongoing litigation in a Texas, where a judge suspended the payment provisions of the 2017 payday rule to take effect. As a result of this litigation, lenders were not required to implement certain consumer protections.

The Texas judge is expected to provide an implementation date for the payment arrangements. They include a ban on the ability of lenders to withdraw funds from a consumer’s bank account after two consecutive failed attempts, unless the consumer consents to further withdrawals. Lenders will also be required to provide consumers with written notice before making their first attempt to withdraw payment from a bank account.

Some experts were surprised that Uejio reported major political actions on payday lending before Rohit Chopra, the Biden administration’s candidate for the office, was confirmed.

“It’s kind of a surprise for an interim director to make such a strong statement,” Denson said. But he also noted that the industry “cannot dispute a blog post and the office’s power to bring cases to UDAAP has always been there.”

Yet a lot has changed in the past decade, during which the CFPB sought to put in place the first federal payday lending regulations.
Prudential banking regulators have urged banks to get started. Many payday lenders have decided to offer longer term installment loans. In addition, installment lenders support repayment capacity standards.

“We are on the same wavelength as the CFPB with a commitment to [strengthen] consumer protection, ”said Mary Jackson, CEO of the Online Lenders Alliance, a business group. “We have implemented new best practices to include [ability-to-repay] and a host of other things that our members are committed to following. “

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