A long-awaited proposal to strengthen payday and small-dollar loan rules is nearing release by the Consumer Financial Protection Bureau more than nine months after the agency initially unveiled the plan.
The agency has struggled with how to regulate payday loans and has several times pushed back its deadline for completing a proposed rulemaking. It finally unveiled an outline of its intentions in March as part of a small business review process but it has not formally issued a proposal.
Industry representatives said the delay is because the plan is so broad.
"The proposal that was put out is so incredibly complicated," said Lisa McGreevy, president and chief executive of the Online Lenders Alliance. "The CFPB was trying to do way too much at one time and I think that's why they've had a difficult time in trying to write this proposal."
The agency initially anticipated it would release the proposal in 2014, based on a tentative schedule it provides the public semi-annually. But it has now been pushed to the first quarter of 2016, according to the most recent version of the agenda released on Nov. 20.
"The Bureau is in the process of developing a Notice of Proposed Rulemaking to address concerns in markets for payday, auto title, and similar lending products," wrote Kelly Cochran, the agency's assistant director of regulations, in the agenda. "The bureau is particularly concerned that lenders are offering these products without assessing the consumer's ability to repay, thereby forcing consumers to choose between reborrowing, defaulting, or falling behind on other obligations. We are also concerned about certain payment collection practices that can subject consumers to substantial fees and increase risk of account closure."
Based on what it said earlier this year, the CFPB is considering giving lenders two options: either lenders must ensure borrowers have the ability to repay the loan beforehand or they must comply with limitations such as how often the loan can be rolled over or reissued with a certain time frame. The CFPB is also looking at stopping lenders from directly withdrawing payments from bank accounts which can lead to repeat fees.
Both consumer and industry groups have sharply criticized the outline, with the former arguing it doesn't go far enough while the latter contends it goes too far. The agency has also been criticized after Politico showed internal emails in which consumer groups were helping the CFPB to craft the payday proposal , though the agency has said it is taking feedback from all stakeholders.
"The outline of proposals the Bureau released in March and the Small Business Review Panel that followed generated important early input which the bureau is carefully considering as we prepare to move into a full rulemaking process," said a CFPB spokesperson. "As the bureau considers federal regulation of payday lending, we will continue to solicit feedback from a variety of stakeholders, including industry participants, consumer advocates, and state and federal regulators."
Richard Hunt, president and chief executive of the Consumer Bankers Association said it was a good thing that the CFPB was taking longer than originally expected in tackling short-term, small-dollar lending.
"The CFPB is doing a thorough job of gathering feedback and we're glad the CFPB is taking its time writing a rule in this case," Hunt said. "The CFPB is being the adult in the room in this matter and we've made it very clear to all three [bank regulators] that they must be together on this rule."
Yet there is a growing agreement between consumer groups and some trade groups that it's well past time to get out a formal proposal.
"Consumers cannot afford to continue to wait for adequate protections to be in place," said Diane Standaert, director of state policy at the Center for Responsible Lending. "We want to see the rulemaking process move forward."
If the CFPB sticks to its most recent timeline and releases the proposal in the first quarter of next year, it will be released for comment for 90 days. The CFPB would then have to review those comments, a process that can take months or even years, before issuing a final rule, which would typically have a one-year implementation timeframe. But that is a problem for some lenders who want to prepare now, industry representatives said.
The delay in the proposal "is a big deal because the uncertainty hanging out there makes it very difficult for lenders to plan and innovate based on the rule," McGreevy said. "We're well into 2017 and maybe beyond that in terms of when the rule actually takes effect. And that's a long timeframe."