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CFPB: Small-Dollar Lending, Debt-Collection Rules Are Coming

July 27, 2017

WASHINGTON, D.C. — The day Republicans introduced joint resolutions in both houses aimed at blocking the Consumer Financial Protection Bureau’s new arbitration rule, a bureau staffer noted in a blog post that the regulator isn't done writing, issuing and finalizing rules.

Under the Regulatory Flexibility Act, federal agencies must publish their regulatory agendas twice a year. Kelly Cochran, the CFPB’s assistant director for regulation, detailed the bureau’s spring 2017 rulemaking agenda in a July 20 blog post. Among the 19 rules discussed were the bureau’s rules on small-dollar lending and debt collection, both of which are listed in the “proposed rule stage.”

“We are considering rules to address consumer harms where markets do not operate efficiently and fairly, making it difficult for consumers to make informed decisions and otherwise protect their interest,” Cochran wrote. “In addition, we are focused on the Dodd-Frank Act objective to promote fair competition among financial service providers, which itself has substantial benefits for consumers.”

The CFPB issued its proposed rule targeting payday loans, auto title loans, and certain high-cost installment and open-end loans in June 2016. According to Cochran, the bureau is currently reviewing more than a million comments received during its proposal’s public comment period, which closed last October.

Under the rule, small-dollar lenders would be required to determine whether the borrower can repay the loan when it’s due and still meet basic living expenses and other financial obligations. It would also make it more difficult for lenders to push distressed borrowers into reborrowing or refinancing the same debt, and limit the number of short-term loans a borrower can take out in quick succession, among other mandates.

“In particular, we are concerned that product structure, lack of underwriting, and certain other lender practices are interfering with consumer decision making with regard to such products and trapping large numbers of consumers in extended cycles of debt that they do not expect,” Cochran wrote. “We are also concerned that certain lenders’ payment collection practices are causing substantial harm to consumers, including substantial unexpected fees and heightened risk of losing their checking accounts.”

Cochran noted that the bureau is engaged in rulemaking activities regarding the debt-collection market, adding that the bureau expects to issue a proposed rule later this year regarding debt collectors’ communications practices and consumer disclosures. The bureau also plans to follow up at a later time to address concern concerns regarding information flows between creditors and collectors regulated by the Fair Debt Collection Practices Act. The regulator will also consider rules to govern creditors that collect their own debts.

The blog was posted at a time when Republicans are ratcheting up calls for President Donald Trump to remove Cordray, whose term expires in July 2018. There’s also the February-issued federal court opinion, which the bureau has since appealed, that the regulator’s structure is unconstitutional.

On Tuesday, the House of Representatives passed a joint resolution of disapproval under the CRA to repeal the bureau’s arbitration rule, which is set to take effect in September. The resolution now needs Senate approval and the president’s signature to repeal the rule.

“An important part of the CFPB’s statutory mandate form the Dodd-Frank Wall Street Reform and Consumer Protection Act is to make rules governing consumer finance markets more effective and to create new rules when warned,” Cochran wrote, in part.

“Much of our rulemaking work is focused on carrying out requirements that Congress has established by law,” she added. “In this work, we strive to achieve the consumer protection objectives of the statutes, while minimizing regulatory burden on financial services providers. We also work to facilitate a smooth implementation process for both industry and consumers.”

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