WASHINGTON — Eighteen Republican state attorneys general sent a letter to the Consumer Financial Protection Bureau last week pushing back against the agency's proposal to rein in high-cost small-dollar loans.
"As chief state legal officers, we are concerned that the proposed rule, if adopted, would irreconcilably conflict with, constrict, and otherwise unnecessarily interfere with existing state consumer protection laws, lending standards, and other state laws," said the letter, which was sent to the CFPB on Oct. 7.
The CFPB received roughly a million letters on the proposal, which would require lenders to assess a consumer's ability to repay a short-term loan unless it meets certain other criteria. But the state AGs argued the plan would supplant state restrictions.
"The proposed rule would impose a one-size-fits-all federal lending standard that will preempt existing state laws, inhibit existing state regulatory enforcement practices, and leave states with very little leeway to experiment with different regulatory approaches to find the most efficient local balance between ensuring access to credit and protecting consumers," the state AGs said.
Additionally, they warned the CFPB's legal woes could factor into the bureau's ability to regulate the industry. On Tuesday, the U.S. Court of Appeals for the District of Columbia Circuit ruled that the bureau's single-director structure is unconstitutional.
Rather than disbanding the agency, the court determined that the CFPB director must serve at the pleasure of the president, making it easier for the president to remove the director.
"We are also profoundly concerned about the constitutional propriety of a rule that would restructure a substantial portion of the financial services sector being imposed by an agency headed by a single — politically unaccountable — individual," the letter said. "Such a decision would render the proposed rule — and any action tied to it — invalid."
The letter was rebutted by eight Democratic attorneys general, who also sent a letter to the CFPB.
"The states commend the bureau for exercising its rulemaking authority in an area that has such a widespread impact on the lives of millions of financially vulnerable consumers across the nation," said the letter from the Democratic AGs.
However, they expressed jurisdictional concerns and said the CFPB plan could water down tougher state laws if they were preempted.
The preamble of the CFPB's proposal says that the proposal would create "a floor across the country," allowing states to impose stricter standards if they see fit, but the Democratic AGs said the language should be included in the final rule and not just the preamble.
"While our states support the bureau's efforts to adopt a set of rules that protect consumers from high-cost loans by attempting to ensure that loans are affordable, we are concerned that the Bureau's Proposed Rules, including the proposed exemptions from the ability-to-repay requirement, are weaker than our state laws and might encourage future efforts to eliminate stringent state usury caps," said the Democratic AGs.
The Republican AGs signing the letter opposing the proposal represent Arkansas, South Carolina, Alabama, Florida, Georgia, Indiana, Kansas, Louisiana, Nebraska, Nevada, North Dakota, Oklahoma, South Dakota, Tennessee, Texas, Utah, West Virginia and Wisconsin.
The Democratic AGs supporting the plan represent New York, Connecticut, the District of Columbia, Maryland, Massachusetts, New Hampshire, Pennsylvania and Vermont.