CFPB’s Payday Loan, Auto Lending Rules in Jeopardy

Financial Services Law

More Consumer Financial Protection Bureau rules may be reversed as lawmakers moved to dismantle both the payday loan rule and the auto lending rule. Meanwhile, a kinder, gentler CFPB announced its intent to revise its final prepaid accounts rule and apply a more lenient approach to HMDA data submission errors.

What happened

Since President Donald J. Trump took office in January, Republican lawmakers have leveraged the change in the administration to chip away at the CFPB’s rulemaking efforts. Now under Trump administration control, the CFPB has even changed how it describes itself in press releases, adding as its mission, to “help[] consumer finance markets work by regularly identifying and addressing outdated, unnecessary, or unduly burdensome regulations.”

Earlier this year, lawmakers passed H.J. Res. 111, which nullified the Bureau’s controversial arbitration rule pursuant to the Congressional Review Act (CRA). The President signed the resolution into law in October. More recently, Acting Director Mick Mulvaney has announced several new staff political hires, with the apparent purpose of stocking the Bureau with personnel more friendly to the current administration.

Payday Loan Rule—Again looking to utilize the CRA—which permits the repeal of an agency rule if both branches of Congress pass a resolution of disapproval by a simple majority vote within 60 legislative days of the rule’s finalization—legislators have now turned their focus to the CFPB’s payday loan rule.

As we have previously reported, the Bureau’s final rule on payday, vehicle title and other so-called high-cost installment loans created new consumer protections for a wide variety of short-term loans and provided official staff interpretations of the rules. Nearly 1,700 pages in length, the rule was issued on Oct. 4.

One of the more controversial provisions of the rule declares it an “unfair and abusive practice” for any lender to make covered short-term or longer-term balloon-payment loans, including payday and vehicle title loans, before reasonably determining that consumers have the ability to repay the loans according to their terms. Pursuant to the rule, it would also be an unfair and abusive practice to make attempts to withdraw payment from consumers’ accounts after two consecutive payment attempts have failed, unless the consumer provides a new and specific authorization to do so.

Now the rule—which is currently set to take effect Jan. 16, 2018—may see the same fate as the arbitration rule. H.J. Res. 122, introduced by Rep. Dennis Ross (R-Fla.), states “That Congress disapproves 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.” Significantly, H.J. Res. 122 includes Democratic co-sponsors.

The measure is currently being considered by the House Financial Services Committee.

Auto Finance—Another Bureau rule may soon be on the road to CRA repeal after the Government Accountability Office (GAO) wrote to Sen. Pat Toomey (R-Pa.) in response to a query about CFPB Bulletin 2013-02.

In 2013, the CFPB released Bulletin 2013-02, providing guidance to indirect auto financing companies and taking the position that the practice of “dealer markups” would be challenged by the Bureau under a disparate impact theory of discrimination.

Critics charged the CFPB with overstepping its bounds, particularly as the Bureau released the guidance without a public notice and comment period. Or as Rep. Jeb Hensarling (R-Texas) characterized it, the CFPB “went far beyond clarifying existing law and instead is attempting to make new policy through this guidance,” which is “an affront to due process, an affront to the rule of law and an affront to basic fairness.”

More than two years later, lawmakers responded with the passage of a bill in the House of Representatives, the Reforming CFPB Indirect Auto Financing Guidance Act. H.R. 1737 would have nullified Bulletin 2013-02 and required that the Bureau conduct a formal notice and comment period before it could issue new guidance on the issue.

The bill passed by a voice vote of 332 to 96 but stalled in the Senate and faced opposition from then-President Barack Obama. But with a new administration, Sen. Toomey saw an opportunity, writing to the GAO to ask if Bulletin 2013-02 was a “rule” subject to the reach of the CRA.

Answering in the affirmative, the GAO concluded the Bulletin is a general statement of policy and therefore a rule that may be repealed pursuant to the CRA process.

“The Bulletin provides information on the manner in which CFPB plans to exercise its discretionary enforcement power,” the GAO explained. “It expresses the agency’s views that certain indirect auto lending activities may trigger liability under [the Equal Credit Opportunity Act (ECOA)]. For example, it states that an indirect auto lender’s own markup and compensation policies may trigger liability under ECOA if they result in credit pricing disparities on a prohibited basis, such as race or national origin.”

The Bulletin applied to all indirect auto lenders, has future effect and was designed to prescribe the Bureau’s policy in enforcing fair lending laws, the GAO added. “In sum, the Bulletin advises the public prospectively of the manner in which the CFPB proposed to exercise its discretionary enforcement power and fits squarely within the Supreme Court’s definition of a statement of policy.”

In response, Sen. Toomey signaled his plans to overturn the Bulletin. “I intend to do everything in my power to repeal this ill-conceived rule using the [CRA],” he said in a statement.

HMDA Data—On Dec. 21, expressly recognizing the significant systems and operational challenges needed to meet the impending requirements, the Bureau formally advised that it does not intend to require data resubmission unless data errors are material or assess penalties with respect to errors for data collected in 2018 and reported in 2019 under the Home Mortgage Disclosure Act (HMDA). Of equal interest, the CFPB announced that it will conduct rulemaking to reconsider various aspects of the Bureau’s 2015 HMDA rule, such as the institutional and transactional coverage tests and the rule’s discretionary data points. Beginning on Jan. 1, 2018, financial institutions will submit HMDA data collected in 2017 and beyond using the Bureau’s new online platform. Reflecting its new posture under Acting Director Mulvaney, the CFPB emphasized that “any supervisory examinations of 2018 HMDA data will be diagnostic, to help institutions identify compliance weaknesses, and will credit good-faith compliance efforts.”

Prepaid Rule—Also on Dec. 21, the CFPB issued a cryptic statement concerning its 2016 rule governing prepaid accounts, noting simply that it “expects to issue a final rule amending certain aspects” of that rule (our emphasis). In so doing, the CFPB will likewise extend the rule’s effective date to April 1, 2018. It is unclear whether the changes are part of the normal administrative review process for proposed rules (the amendments were first proposed in June 2017) or as a result of actions initiated by the new acting director.

To read the GAO’s letter to Sen. Toomey, click here.

Why it matters

The Trump administration, aided by Congress, is acting with resolve to decrease regulatory burdens imposed by the CFPB. Not surprisingly, CFPB Acting Director Mick Mulvaney expressed his support for H.J. Res. 122, as did the House Financial Services Committee, which noted that if the payday loan rule were to take effect, it “would mark the first time the federal government has gotten involved in the regulation of these loans.” The resolution also enjoys some bipartisan support, a fact that will likely ease its passage. A joint resolution under the CRA for Bulletin 2013-02 will likely follow.



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