Last week, after five years of debate, discussion, argument and waiting, the final Consumer Financial Protection Bureau (CFPB) rules for payday loans were dropped.
As you would expect after such a long and intense build, the reactions were also quite intense from both sides.
What is perhaps less expected is where opinions met, because outside of standard reaction camps, consensus is built.
No one will dispute that regulation is unnecessary or that abuse does not occur. But if what the CFPB offers is the set of regulations – a multibillion dollar per year industry that serves tens of millions of Americans who seem to be in desperate need of its services – then this is the right set of regulations. is where there are differences of opinion.
Opinions are more nuanced, even in places you wouldn’t expect to see them. Reading the collective reactions of the financial services ecosystem over the past seven days shows one very clear thing:
The CFPB may have called its payday loan settlement a final draft, but that process is far from over.
Any expected reactions (from the people you expected to get)
Consumer advocates and Democratic lawmakers and those who have generally broadly supported the CFPB and its efforts were quite pleased with the agency’s decision last week.
“The publication of today’s regulations has gone on for years, and it would not have been possible without the tireless efforts of community and religious leaders, consumer and civil rights advocates and countless people across the country. the country who organized themselves and worked hard to make their voices heard, ”said Michael Calhoun, president of the Center for Responsible Lending.
“Too many Americans end up sinking into the quicksand of debt when they take out expensive and expensive loans,” said Suzanne Martindale, senior counsel for the Consumers Union, who praised the rules’ attempts to ward off debt. consumers of what she called “the debt treadmill.
“The CFPB took an important step today to protect consumers from harmful payday loans and single payment auto securities,” said Nick Bourke, director of the consumer finance project at The Pew Charitable Trusts.
“Consumer Financial Protection Bureau rule will crack down on shady payday lenders who charge borrowers triple-digit interest rates and cost Ohioians over $ 500 million a year in fees alone,” said US Senator Sherrod Brown . “Payday lenders have exploited loophole after loophole to trap workers in debt, and this rule will help end their abusive practices.”
On the other side of the question, however, industry representatives were much less enthusiastic and genuinely concerned about the unintended losses of “consumer protection” legislation.
“Millions of American consumers are using small loans to manage budget deficits or unexpected expenses,” said Dennis Shaul, general manager of the Community Financial Services Association of America. “The faulty rule of the CFPB will only serve to cut off their access to vital credit when they need it most.
“As difficult as it may be for some people to admit, payday lenders provide a valuable service for which countless consumers have shown they are both willing and able to pay,” noted Norbert Michel, researcher at the Heritage Foundation in financial regulation.
“The final rule released today will devastate an industry that serves nearly 30 million US customers each year,” noted Edward D’Alessio, executive director of the Financial Service Centers of America.
“More worryingly, this rule completely ignores the concerns and needs of actual borrowers, who value this credit option and have told CFPB in the record 1.4 million comments submitted. Rather, it is the predetermined result of an artificial and deeply flawed rule-making process, dictated by personal and political biases and the inordinate influence of ideologists and activists, to gut a regulated industry and deprive millions of American consumers have the right to vote, ”noted Jamie Fulmer, senior vice president of public affairs at Advance America.
Against these divergent views, a consensus began to emerge.
Somewhat unexpected agreement
It is not at all surprising that The Wall Street Journal and ForbesThe drafting committees strongly criticized the new regulations. Both noted that the regulations appear to have been drafted for the express purpose of banning payday loans without actually banning them – and that such a move would push consumers into very shady corners of the market.
Even more surprisingly, the editorial boards and editors of The Washington Post and The Boston Globe agree with them, given their historic pro-CFPB position. But both have made similar arguments: consumers need payday loans; for many, this is their only option. Driving the market payday lenders without an alternative puts them at risk.
Fulmer of Advance America also explained that unlike popular reporting on the subject, the short-term lending industry is not hostile to regulation or more legislation; indeed, regulation to clarify the segment would be useful and welcome in a market where the rules vary so widely from jurisdiction to jurisdiction. Fulmer said most players do not even oppose increased competition from banks and applaud the regulatory clarity that would allow them to compete in the market.
But, he said, competition is only competition if the two parties compete on an equal footing – instead of a regulator who arbitrarily chooses a winner.
“Banks and credit unions should look for ways to serve these customers, who are always better served when there is competition in the market; but that does not mean that they should benefit from special exemptions or derogations. There should be competition for the consumer’s business under the same rules and regulations that non-depository providers operate under, ”Fulmer noted in an interview with PYMNTS.
Or, as Pew Charitable Trust pointed out, operating under clear regulations known to all.
The long march ahead
PYMNTS met Alex Horowitz from Pew, who noted that the nonprofit supports the CFPB rules attempt to create a “well-balanced” solution that reduces harm to consumers and provides a “pathway to the market. small dollar credit ”.
But, he said, there is still a long way to go for these rules to work meaningfully for consumers.
“The banks don’t know the rules because the whole market has been in a suspended state of animation for five or six years now, awaiting these final rules,” Horowitz noted, adding that no bank or credit union don’t want to develop a new small loan program until they know what the rules are.
The CFPB’s final payday loan rule is a big step, Horowitz said, but there are many more steps to come.
“Banks need clear guidelines from a multitude of players. There is the OCC for national banks; for small states, there is the FDIC; the average banks have the Fed and there is the NCUA for credit unions. These guidelines should be clear enough to help them develop a small loan program.
Horowitz noted that the CFPB waiver specifically refers to very small banks that give very small volumes of consumer loans in order to get much better products than the payday loans offered today by the big banks, simply because they have the most customers.
There are reasons to hope that this will happen with better regulatory guidance. According to Horowitz, the banks’ overheads and lower investment costs mean that, under the right terms, they can offer short-term loan customers a better deal on a small dollar loan while still making the loan profitable.
Horowitz pointed out that the comments – submitted by banks to the CFPB last year, even from large banks – sought simplified guidelines that would allow them to use automation to offer small loans. This is important, he said, because if there is regulatory uncertainty, it becomes very difficult to take out or make small loans. If a bank has to manually take out many small loans over short periods of time, it reduces any profit it might make by offering a more reasonably priced alternative to payday lenders.
Banks, he said, have no reason to enter the segment if they cannot make money; they can’t make money if they can’t automate, and they can’t automate without specific regulatory guidance.
Unfortunately, they may have to wait.
The Office of the Comptroller of the Currency (OCC) offered preliminary guidance to rescind more restrictive rules from 2013, but only hinted that it may come up with more specific rules in the future.
This process, however, will likely be suspended until it has a permanent leader; Keith Noreika has passed the committee and is heading for full Senate confirmation. It should be confirmed, but Washington is a wild place these days. The term of the president of the Federal Deposit Insurance Corporation (FDIC) will end next month, and it is likely that no new direction will come from there until his permanent replacement is in office. So far, the Federal Reserve and the National Credit Union Administration (NCUA) have said little on the subject, and since neither has been mentioned much in reports on this subject, it is not entirely clear what ‘they know they are supposed to respond.
Additionally, Senate Republicans may attempt to use the Community Reinvestment Act (CRA) to block the rule change (although this is considered unlikely, given its location in the timeline and the polarization of the issue), lawsuits may prevent its implementation and the CFPB will have a new director appointed by a Republican president in July 2018, no matter what.
Alex Horowitz pointed out that banks, even when they have clear regulatory guidance, will still have to create the products.
So stay tuned. Many regulators, legislators, judges, consumer advocates, lobbyists and lawyers still have a long way to go.
This may have been the last rule of the CFPB, but it will be far from the last word.