CFPB set to restore tough stance on payday lenders

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

Acting CFPB director Dave Uejio — appointed by the Biden administration to lead the agency after Kathy Kraninger resigned — made his strongest comments yet on the 2020 rule, which eliminated requirements for underwriting for small lenders.

Uejio said in a blog post that the office’s new management supports the “repayability” standards, originally established in a previous rule from 2017 that was unrolled by Kraninger, signaling that the agency will reinstate them.

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

“The CFPB is acutely aware of the harms consumers are experiencing in the low-cost loan market and is particularly concerned about any lender’s business model that depends on consumers’ inability to repay their loans,” Uejio said. “Years of research by the CFPB has revealed that the vast majority of this industry’s revenue comes from consumers who cannot afford to repay their loans, with most short-term loans being re-borrowing strings of 10 or more .”

Some experts said that until the bureau takes further action, payday lenders and auto lenders can still rely on last year’s regulations that rolled back repayment capacity requirements on small loans of 45 days or less.

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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 intent on overturning the rule , the CFPB petition argued that the plaintiff, the nonprofit National Association for Latino Community Asset Builders, lacked standing to sue because its members are not regulated by the CFPB. .

In 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. To the contrary, the Bureau believes that the harms identified by the 2017 Rule still exist and will use the authority granted by Congress to remedy those harms, including through vigorous market surveillance, oversight, enforcement and, where appropriate appropriate, the development of rules.

Some experts said that until the bureau takes further action, payday lenders and auto lenders can still rely on last year’s regulations that rolled back repayment capacity requirements on small loans of 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, of Greenwich, Connecticut. , lawyer representing payday lenders and former president of the Payday Loan Bar Association.

The CFPB can also use its enforcement authority to aggressively pursue violations of the UDAAP in areas other than underwriting, such as marketing, debt collection, or dealing with borrowers with limited proficiency. ‘English.

Others have suggested Uejio is implying that the CFPB might not need to reinstate the 2017 payday rule to prosecute bad actors.

“It’s a signal that the [2017] the rule may not exist anymore, but they don’t need it and they can still investigate and take legal action,” said Venable partner Allen Denson. “I think that’s a pretty big statement.

The CFPB’s exam manual for small, short-term lenders includes a section on so-called sustained use, Denson said, which refers to repeated payday loan borrowing.

Years of CFPB research supported the bureau’s view that repeated reborrowing of 10 or more loans by a single consumer constituted harm, Uejio said.

“One in five payday loans and one in three vehicle title loans ended in default, even including reborrowing periods,” Uejio wrote in the three-paragraph blog post. “And one in five borrowers for vehicle title ended up having their car or truck seized by the lender. It’s real bad for real people.

Payday lenders lobbied to overturn the 2017 rule, arguing that the rule would have eliminated at least 55% of the revenue of lenders who offer low-value loans of 45 days or less. Industry trade groups have claimed that the CFPB, under Obama-appointed Richard Cordray, is trying to drive the majority of payday lenders out of business and leave cash-strapped consumers with no access to credit .

The cancellation of the 2020 Trump-era payday rule is further complicated by ongoing litigation in a Texas, where a judge suspended the day rule’s payout provisions from taking effect. 2017 payroll. As a result of this litigation, lenders were not required to implement certain consumer protections.

The Texas judge should provide an implementation date for the payment provisions. They include a ban on lenders’ ability to withdraw funds from a consumer’s bank account after two consecutive unsuccessful 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 pundits were surprised that Uejio was reporting major policy actions on payday loans before Rohit Chopra, the Biden administration’s nominee to head office, was confirmed.

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

Yet much has changed over the past decade, during which the CFPB has sought to implement the first federal regulation of payday loans.
Banking prudential regulators have urged banks to get into the field. Many payday lenders have moved to offer longer term installment loans. In addition, installment lenders support repayment capacity standards.

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

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