Late last year, on the eve of former director Richard Cordray’s departure, the Consumer Financial Protection Bureau released its “Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule,” which, while styled as consumer protection, immediately created widespread confusion and uncertainty among businesses and consumers throughout the United States.
Thankfully, the CFPB has announced it will revise this ill-considered and poorly constructed rule, a result that can’t come soon enough as businesses wait in regulatory limbo and consumers, who are already stressed, learn whether a valued financial service will remain available to them.
Without a change to this harmful rule, hundreds of regulated businesses currently offering small loan products will be forced to close. A study conducted (and submitted to Cordray’s CFPB during the rulemaking process) of the effect of the rule established that virtually all of the businesses attempting to operate under its overly restrictive provisions would become unprofitable, a result that is merely reflective of the bureau’s own estimate that revenues would decrease by at least 75 percent and that the industry would suffer sever contraction.
What’s worse will be the aftermath of these closings. Each of those shuttered stores will be forced to lay off their employees — leading to the loss of nearly 60,000 jobs nationwide. Many of the jobs belong to racial and ethnic minorities and are in communities where other jobs are scarce. The bureau, in an attempt to regulate away a critical financial product will in fact regulate away valuable jobs in America’s most vulnerable communities.
Let’s also not forget the consumers. Each year, 15 million American households rely on small dollar loan products for credit, and the other products offered by the industry including providing a safe place for consumers to cash checks, pay bills, and transfer money. The industry processes 350 million transactions annually for underbanked and unbanked Americans. Where are they to turn when they no longer have access to a financial service center?
Some might say a bank, but these consumers know that’s unlikely. Without a steady income or established credit history, or, as is more likely the case a poor credit history, these Americans will be turned away from traditional financial institutions and forced to turn to the unregulated black market.
Thankfully, Cordray has moved on, and the new leadership of Mick Mulvaney has taken notice of the infirmities of this rule. The CFPB has now announced that it expects to issue proposed rules in January 2019 that will reconsider the bureau’s Small-Dollar Loan Rule, as well as address its compliance date. Specifically, the bureau has expressed its intention to revisit the ability-to-repay provisions of the rule, which will be the primary culprit in denying access to credit
This is no doubt a long-needed step in the right direction. The bureau plans to rightly re-evaluate this provision, which will have significant consequences for both industry and consumers if implemented in its current form. By the CFPB’s own assessment, the ability-to-repay provision itself, if left untouched, would be a major factor in drastically reducing revenues, eliminating profitability and decimating the industry.
In addition to its intent to revisit the ability-to-repay provision, the CFPB also announced it will revisit the compliance date of the rule — and rightfully so. Both industry stakeholders and consumers have been in a state of limbo as businesses struggle with whether or not to incur costly compliance fees should the rule not actually go in effect, and with customers unsure as to whether or not these important forms of credit will exist come next year. Moreover, businesses are in the process now of making business plans regarding leases, investments in store locations and technology, hiring, and refinancing of debt.
As it stands now, the compliance date of August 2019 draws near — and the CFPB’s announcement of a proposed rulemaking to reconsider the ability-to-repay provisions and the compliance date has the ability to assuage the fears of countless businesses, employees and consumers
Mulvaney and the CFPB have taken this process seriously — something for which the financial service center industry and I have been extremely grateful. Come January 2019, it’s vital the CFPB’s proposed rules address the very real concerns of businesses and consumers alike.
The time has come to put a stop to the former bureau’s overregulation. I look forward to working with the CFPB staff to ensure Americans have access to the critical forms of credit short-term lenders provide for years to come.
