Industry Responds to CFPB Small Dollar Lending Rule

Dennis Shaul, CEO of the Community Financial Services Association of America (CFSA), today released the following statement regarding today’s release of the CFPB’s final rule on small-dollar lending:

“This federal small-dollar lending rule is a tremendous blow to the more than one million Americans who spoke out against it during last year’s comment period. Millions of American consumers use small-dollar loans to manage budget shortfalls or unexpected expenses. The CFPB’s misguided rule will only serve to cut off their access to vital credit when they need it the most. The rule is not only misguided, it’s hideously complex for loans of a few hundred dollars. The final rule is nearly 1,700 pages – more than 300 pages longer than the proposed rule.

There was an unprecedented outcry against this rule during the comment period – setting a record for a CFPB rulemaking and marking one of the largest of any federal agency. Yet, from the start, the CFPB’s small-dollar loan rule was crafted pursuant to a pre-determined ideological agenda that relied on biased data, anecdotes, and closed-door dealings with so-called consumer groups that have long sought to eliminate small-dollar lending.

The flawed rulemaking process raises serious questions that demand answers. Throughout the rulemaking process – even during the comment period itself – the Bureau ignored the input of small-dollar loan customers, industry, and numerous other experts as it rushed to finalize the rule. While it was clear that the Bureau was on an ideological campaign against payday from day one, the full scope of the rule has been less clear. At one point it covered all small dollar loans, at another point there were rumors that the rule would be bifurcated and what we have today appears to be some kind of hybrid. The shifting scope of the rule seems to be a function of expediency more than anything else.

The questions about Director Cordray’s intentions and ambitions have created a cloud of suspicion over this rule. In particular, the timing of the rule raises questions about whether it was hastily issued to fit an artificial timetable and all the Director’s recent actions at the Bureau raise questions.

The CFPB’s coziness with special interest groups during the rule’s crafting, its failure to address any kind of illegal lending in this final rule, and its disregard for the consumers who have spoken out against the rule only lend more credence to suspicions of a partisan political agenda guiding the Bureau’s actions.

The CFPB’s actions have also raised a fundamental issue of whether the agency has observed due process or simply chosen an arbitrary route in its rulemaking. On several occasions, CFSA raised serious concerns over the CFPB’s inaccurate categorization of the unique, individualized comment letters it received. Additionally, CFSA expressed concern about whether the Bureau was appropriately reviewing and considering all public comments as required by the Administrative Procedure Act (APA).  CFSA also cited concern about the inconsistent process in which the comment letters were posted to Regulations.gov for public viewing.  

Given the overwhelming volume of customer comments and the CFPB’s duty to read each of them, it seems suspect that the CFPB was able to review the comments as it is required by law. Ignoring the people who use small-dollar loans shows that the Bureau has chosen special interests and activist groups over the very consumers it claims to protect.”

The iA Perspective

As most in the ARM industry know, the CFPB has also been hard at work on a debt collection rule. Although the bureau carved off a chunk of the expected coverage for the rule and pushed its timeline out, one can only imagine the number of pages that will be required to address the complex market.

At this point, the timing of the debt collection rule is unknown. Over the summer, the latest timeline stated September 2017, though that seemed unlikely, given - among other factors - that the bureau had just kicked off a new consumer survey (titled, “Debt Collection Quantitative Disclosure Testing,” this time, to gather information regarding the effectiveness of disclosures).

Director Cordray has said on a number of occasions that he views rulemaking as an iterative process. Indeed, mortgage rules have now seen amendments to amendments. Perhaps he views rulemaking the way many software companies view new releases -- get it out in beta and issue fixes along the way.