CFPB News: Existential Questions, Payday Lending Reexamined

Financial Services Law

It’s a huge week for the Consumer Financial Protection Bureau (CFPB), as it announces a “call for evidence” on how well it is performing its “proper and appropriate” functions, and the bureau announces that it will reconsider a tough payday lending rule that was scheduled to take effect on the very date of the announcement.

What happened

Call for Evidence—On Jan. 17, the CFPB announced that it is issuing a call for evidence to ensure the bureau is “fulfilling its proper and appropriate functions to best protect consumers.” The bureau adds that, in coming weeks, it will be publishing in the Federal Register a series of so-called requests for information (RFIs) seeking comment on enforcement, supervision, rulemaking, market monitoring and education activities. The CFPB adds that these RFIs “will provide an opportunity for the public to submit feedback and suggest ways to improve outcomes for both consumers and covered entities.” The first RFI issued by the bureau will seek public comment on civil investigative demands (CIDs), which are issued during an enforcement investigation. Comments received in response to this RFI will help the bureau evaluate existing CID processes and procedures and determine whether any changes are warranted. The choice of CIDs as the first RFI topic is, we believe, revealing, as the CFPB’s CID practices arguably have triggered the most industry criticism and the most reversals in court. Accordingly, the new management at CFPB perhaps is anticipating that this topic will generate the most “evidence” in support of their efforts to remake the bureau.

Standing alone, the CFPB announcement is not all that significant in that a relatively new agency might logically seek feedback from its various constituencies as to how well it is performing its various functions. But in the context of Mick Mulvaney’s accession to the role of acting director, the announcement appears to present a potentially existential challenge to the CFPB. Mr. Mulvaney is a harsh critic of the CFPB, and the announcement makes clear that “under new leadership, it is natural for the Bureau to critically examine its policies and practices.”

Payday Lending Rule—On Jan. 16, the CFPB advised that it “intends to engage in a rulemaking process so that the Bureau may reconsider the Payday Rule.” Depending on the breadth of the reconsideration, the maneuver could largely render moot Congress’s effort to disapprove the rule under the Congressional Review Act. As noted above, the timing is unusual: Jan. 16 was the effective date for the Payday Rule except that, as the CFPB stressed, “most provisions of the Payday Rule do not require compliance until August 19, 2019.”

The CFPB’s change of heart comes as no surprise given the departure of Obama appointee Rich Cordray and his replacement on an acting basis by Trump selection Mick Mulvaney. As we recently predicted, this rule was already bound for trouble. Indeed, the GOP-led House of Representatives is already considering H.J. Res. 122, introduced by Rep. Dennis Ross (R-Fla.), under which, pursuant to the Congressional Review Act, Congress would formally “disapprove[] the rule submitted by the Bureau of Consumer Financial Protection relating to ‘Payday, Vehicle Title, and Certain High-Cost Installment Loans’ and such rule shall have no force or effect.” Mr. Mulvaney had already expressed his support for the resolution before the CFPB’s actions on Jan. 16.

The CFPB likewise addressed the requirement that applicants file an application to serve as a “registered information system (RIS)” under the proposed rule. The CFPB notes that, while “[t]oday’s effective date also establishes April 16, 2018, as the deadline to submit an application for preliminary approval to become” an RIS, “the Bureau may waive this deadline pursuant to 12 C.F.R. 1041.11(c)(3)(iii). Recognizing that this preliminary application deadline might cause some entities to engage in work in preparing an application to become a RIS, the Bureau will entertain waiver requests from any potential applicant.”

Why it matters

The call for evidence could be the beginning of a process that results in wholesale changes in CFPB responsibilities, functions and outlook. And the Payday Lending Rule would have resulted in a draconian reduction in the availability of short-term credit for many consumers. The abrupt reconsideration provides hope that the bureau will more fully consider the many thousands of comments received from consumers and industry alike that urged preservation of these credit options. Look for more of the same from the Mulvaney-led CFPB. The Trump administration is using the broad powers of the CFPB directorship to make sweeping changes in the bureau’s regulations and purpose.



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