The Consumer Financial Protection Bureau said Friday that it will propose changes in January to the underwriting provisions of the agency's rules for payday lenders as well as to when those rules take effect.
Current acting Director Mick Mulvaney is pursuing two goals: water down the forthcoming ability-to-pay requirements for payday lenders, and extend the compliance date — now August 2019 — to give the agency and industry enough time to incorporate the changes.
In a statement, the agency said it will "issue proposed rules in January 2019 that will reconsider the ... [payday loan regulation] and address the rule's compliance date."
The payday industry has fought all efforts to federally regulate the industry and has claimed the ability-to-repay provision, which is also intended to limit the number of loans lenders can make to borrowers, would put the vast majority of lenders out of business.
Insiders say the CFPB is looking to extend the compliance date to late 2019 or even 2020, and finalize the extension quickly.
The CFPB said its January proposal will not address how lenders extract loan payments directly from consumers’ accounts, restrictions designed to protect funds from being garnished by payday lenders.
“The Bureau is currently planning to propose revisiting only the ability-to-repay provisions and not the payments provisions, in significant part because the ability-to-repay provisions have much greater consequences for both consumers and industry than the payment provisions,” the bureau said in the statement. Yet the specifics of the proposal are still somewhat in flux. "The Bureau will make final decisions regarding the scope of the proposal closer to the issuance of the proposed rules," according to the statement.
The CFPB said its new proposed rule “will be published as quickly as practicable consistent with the Administrative Procedure Act and other applicable law.”
Many in the industry had expected the CFPB to act more quickly to change the payday rule’s compliance date. Mulvaney
In April, two trade groups representing payday lenders sued the CFPB to invalidate the payday rule, claiming it was “arbitrary, capricious, and unsupported by substantial evidence,” in violation of the APA.
However, if the CFPB proposes gutting the ability-to-pay provision, consumer advocates are likely to launch their own legal challenge, also claiming violations of the APA.
Richard Hunt, president and CEO of the Consumer Bankers Association, said the bureau should consider all aspects of the rule, not just the ability-to-repay requirements, “to prevent unintended consequences for loans the original rule was not intended to cover.”
The payday rule covers only small-dollar loans, not longer-term installment loans. Many say the payday rule would hurt consumers who need funds in between pay periods.
“Study after study have shown about half of American families cannot cover emergency expenses,” Hunt said in a statement. “Allowing banks to operate in this space — subject to sound banking practices — will prevent bank customers from being forced to rely on less regulated or unregulated sources of income like online lenders, check cashers or pawnshops.”
In May, the Office of the Comptroller of the Currency reversed course set by previous regulators and
Yet the CFPB is trying to thread a needle by proposing changes to a regulatory framework that hasn't even taken effect yet. The bureau has signaled that it will try to quickly address the August 2019 compliance date. But with any changes, the agency has to go through a notice and comment process, and it is unclear if the CFPB has the legal means to reverse a prior rulemaking simply because of a policy difference with its past leadership.
The final payday rule issued in October, when Cordray was still aboard, is nearly 2,000 pages long and was developed over a five-year period during which the CFPB conducted research to try to back up its approach.
Many lawyers expect the CFPB to argue the final payday rule issued under Cordray did not include an adequate cost-benefit analysis, which the payday industry also argued in its lawsuit.
“While new Bureau leadership announced plans to reconsider the payday rule back in January, anxiety has been building about when they would act," said Ben Olson, a partner at Buckley Sandler and a former CFPB deputy assistant director. "This announcement seems intended to manage expectations about what the Bureau will do and when they will do it.”
The bureau's own research under Cordray found that lenders would lose 70% to 90% of their revenue because of the ability-to-repay provisions.
The CFPB was forced to come up with a new proposal after a federal judge in June denied a request by Mulvaney to delay the payday rule’s effective date. The payday industry’s lawsuit, filed in Texas, has been stayed pending completion of any changes to the rulemaking.
To be sure, the payday rule will likely continue to be the source of litigation, since it was the first federal regulation of the small-dollar loan industry.
Because the payday rule was the first federal regulation of the small-dollar loan industry, it will continue to be the subject of litigation.
“The most interesting question is what the bureau will propose to replace the final rule’s ability-to-repay requirements,” said Jane Luxton, a member of the law firm Clark Hill.
