A subcommittee of the House Oversight and Reform Committee heard testimony on the CFPB's rulemaking process and its proposal to repeal parts of its Payday, Vehicle Title, and Certain High-Cost Installment Loans rule. The Bureau's Policy Associate Director for Research, Markets & Regulations testified before the subcommittee on May 16.
The House Committee on Oversight and Reform's Subcommittee on Economic and Consumer Policy is examining the Consumer Financial Protection Bureau's rulemaking and, in particular, the Bureau's proposal to repeal parts of its 2017 Payday, Vehicle Title, and Certain High-Cost Installment Loans rule (2017 final rule). A release published by the committee provides specifics on payday loans and the CFPB rule. Chairman Raja Krishnamoorthi (D-Ill) made the opening statement, and Thomas Pahl, CFPB Policy Associate Director for Research, Markets & Regulations, testified on the Bureau's rulemaking and its position on the payday loan rule.
Krishnamoorthi statement. In his opening statement, Krishnamoorthi discussed the CFPB's five-year study of the payday loan industry and the results that led to the 2017 final rule. He described the rule as a common-sense rule intended to stop the debt traps associated with payday loans by requiring lenders to determine consumers' ability to repay before making payday, title, and other high-cost installment loans. Krishnamoorthi provided an example of a consumer's dealing with the payday and title loan industries, who said the lenders are “profiting off the backs of poor people.” The chairman concluded by stating, “We in this room may not by payday borrowers, but we need to stand up for them. If we do not, what protections will CFPB come for next?”
Pahl testimony. Pahl began by stating that while much of the debate over small-dollar loans concerns the CFPB's rulemaking, to understand how the Bureau is protecting consumers in connection with those loans requires a discussion of the use of the CFPB's range of tools provided by the Dodd-Frank Act. He addressed financial education, supervision of small-dollar lenders to ensure compliance with laws, and their implementing regulations. When a supervisory examination reveals legal violations, “the Bureau does not hesitate to direct the institution to remediate the violation,” Pahl said. He noted that the Dodd-Frank Act authorizes the CFPB to supervise payday lenders, and the Bureau is “actively engaged” in that supervision.
Enforcement remains a valuable tool “because there will always be bad actors who do not comply with the law,” Pahl said. He testified that in the past year, the CFPB initiated five enforcement actions involving payday lenders. In each case, the Bureau entered into a consent order prohibiting the payday lenders from engaging in the same or similar practices in the future. In four of the five cases, the lenders were required to pay civil money penalties. The CFPB also obtained final judgments against payday lenders in two previously-filed cases.
After explaining the basics of CFPB rulemaking authority, Pahl turned to the topic of the 2017 final rule. Certain provisions are based on a determination that it is an unfair and abusive practice to make covered short-term and balloon-payment loans without reasonably determining that consumers have the ability to repay the loans according to the terms, Pahl explained. The Bureau found that the Mandatory Underwriting Provisions would result in a decrease of between 51 and 52 percent in the number of payday loans and a decrease of between 89 and 93 percent in title loans. In both cases, there would be significant reductions in revenue, he noted, leading to a contraction in the number of payday and vehicle title lenders.
Pahl said that since issuing the 2017 final rule, the CFPB “has come to have serious doubts as to whether the appropriate legal standards were applied and whether the evidence was sufficiently robust and reliable to support the Bureau's determination that small dollar lenders engage in an unfair or abusive act or practice if they make loans without making a reasonable determination that consumers can repay them.” He testified that the notice of proposed rulemaking issued by the CFPB on Feb. 6, 2019, explained the Bureau's reasoning for its preliminary determination and sought comments on repealing the provisions on ability-to-repay. A second notice of proposed rulemaking to delay the compliance date for these provisions was issued concurrently with the rescission proposal. Pahl concluded by stating that the Bureau is evaluating comments in response to the proposals.
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