Regulation by Blog or Press Release?

Financial Services Law

CFPB Acting Director Warns of Enforcement on ‘Ability to Repay’ and Residential Evictions

In two recent communications, the Consumer Financial Protection Bureau (CFPB or Bureau) acting director is signaling that the Bureau will vigorously enforce against consumers harmed by short-term lenders that fail to underwrite loans based on the borrowers’ ability to repay them.

We discuss what happened and why it matters below.

What Happened

Payday Rule. In November 2017, the Bureau published a final rule (2017 Final Rule) that established various consumer protections for payday loans, vehicle title loans and certain high-cost installment loans, pursuant to Title X of Dodd-Frank. The 2017 Final Rule addressed a number of issues, including two discrete provisions concerning payment, the first of which (mandatory underwriting) is relevant here.

Although the 2017 Final Rule was set to take partial effect in January 2018, the CFPB (then led by Acting Director Mick Mulvaney) issued a statement on the effective date announcing its intention to engage in rulemaking to reconsider the 2017 Final Rule, and a lawsuit filed in Texas federal court sought, successfully, to enjoin the rule pending the outcome of trial. Thereafter, in February 2019, the CFPB issued a notice of proposed rulemaking to revoke the mandatory underwriting provisions.

In July 2020, under then-Director Kathy Kraninger, the CFPB issued its 2020 Final Rule, which we analyzed at the time here. The most discussed provision in the 2017 Final Rule was the provision that deemed it an unfair and abusive practice for a lender to make a covered short-term loan or a covered longer-term balloon-payment loan without reasonably determining that the applicant had an ability to repay the loan according to its terms. This provision has been excised by the 2020 Final Rule, largely because of fears that it would entirely cut off a particularly vulnerable—and often unbanked—group from the credit market, leaving them with nowhere to turn when in need of emergency funds.

With the return to a Democratic administration, the old CFPB leadership is gone. On March 23, 2021, CFPB Acting Director Dave Uejio has now blogged that the Bureau “is particularly concerned with any lender’s business model that is dependent on consumers’ inability to repay their loans.” Wrote Uejio, “[o]ne in five payday loans and one in three vehicle title loans ended in default, even including periods of reborrowing. And one in five vehicle title loan borrowers ended up having their car or truck seized by the lender. That is real harm to real people.”

So what does the CFPB intend to do about it? Says Uejio, the “Bureau continues to believe that ability to repay is an important underwriting standard” and “will use the authority provided by Congress to address these harms, including through vigorous market monitoring, supervision, enforcement and, if appropriate, rulemaking.”

Evictions. On March 29, 2021, Uejio joined with Federal Trade Commission (FTC) acting chair Rebecca Slaughter to warn lenders and investors against conducting residential evictions in contravention of the eviction moratorium. In their joint statement, the CFPB and FTC acting heads warned landlords, eviction management services and, most interestingly here, private equity firms against conducting such prohibited evictions. Given that a number of private equity firms have mortgage lenders and servicers in their portfolios, this reference was hard to miss. Of particular note, the joint statement likewise notes that the staffs of both agencies would be investigating practices, and may view actions as deceptive and unfair practices in violation of the FTC Act and the Fair Debt Collection Practices Act, the latter provision of which would not apply to private equity firms per se but to their portfolio companies that qualify as “debt collectors” under the statute.

Why It Matters

In prior years, the CFPB, under directors Kraninger and Mulvaney, pointedly abandoned regulation by enforcement, arguing that regulated entities were entitled, first, to formal regulation. Uejio’s actions, whether by blog post or press release, are about the only advance warning that lenders may see from this version of the CFPB as it potentially moves back into a “regulation by enforcement” mode.

This is particularly troubling in both these recent pronouncements. For example, on short-term lending, after two separate predecessors rejected inclusion of “ability to repay,” it is hard to argue that the CFPB somehow “continues to believe” the opposite, as Uejio suggests here. Moreover, the blog appears to warn of aggressive pre-rulemaking enforcement, whether or not the current rule includes such requirements.

With respect to the eviction announcement, the announcement timing is curious in light of the Sixth Circuit ruling holding that the eviction moratorium is itself improper because the Centers for Disease Control and Prevention lacked the authority to extend it. We report on that ruling here.

The Manatt consumer financial services team is currently advising clients on this and other pending changes at the CFPB. Please reach out to the authors or any other member of the team if you have any questions.



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