Listen to small businesses, customers to craft small-dollar loan regulations

May 27, 2020 | CFSA Commentary

By Mickey Mays

The Consumer Financial Protection Bureau (CFPB) will soon release a final rule to fix the most glaring issues with its 2017 small-dollar lending rule, which stood to shutter hundreds of small businesses and leave millions of consumers without access to credit.

At the time, I saw firsthand that its so-called rulemaking ‘process’ wasn’t really a process at all. Instead, the Bureau, led by former Director Richard Cordray, ignored small business owners and consumers at every turn. Now, the Bureau has a chance to right some of its worst wrongs and release a new rule that allows small businesses like mine to continue serving our communities.

I opened Thrifty Loans, which operates storefronts across Louisiana and East Texas, 22 years ago. As a small business owner with years of experience as a small-dollar lender, I was invited to provide input to the CFPB during its original rulemaking process in early 2015. The CFPB was required by law to hear from people like me under the Small Business Regulatory Enforcement Fairness Act (SBREFA), but in practice they treated it as just dotting their “i’s” and crossing their “t’s” to fulfill a requirement.

It was apparent through my entire time dealing with the CFPB that the Bureau did not actually care about the opinions of small business owners. The CFPB directed a group of 19 of us to travel to Washington at our own cost in April 2015 to discuss our views on their proposed rule.

At one point, a fellow panelist asked which people in the room would be put out of business if their rule was enacted. All 17 of the small-dollar lenders in the room stood up; the two that did not stand represented a credit union and bank. It was a defining moment for us all – yet the Bureau officials ignored it.

That should have been the time for the CFPB to hit pause on its proposal and go back to the drawing board to develop a rule that balanced access to credit with consumer protections. Instead, the CFPB finalized a rule that disregarded our input and saddled us with nearly 1,700 pages of complicated and over-burdensome rules that stood to put my company and hundreds of others across the country out of business.

In fact, the Bureau’s own analysis concluded that 70 percent of small-dollar lenders would be forced to close under its rule, and even the U.S. Small Business Administration’s Office of Advocacy expressed concerns about the rule’s harmful impact on small businesses nationwide.

Despite the overwhelming opposition, the Bureau finalized the rule on Oct. 5, 2017, without taking these concerns into account. I would have been one of them, as the compliance costs alone would have put me out of business. Just as we saw small banks struggle to comply with new and costly regulations after the financial crisis, small lenders would be swallowed up by this unworkable rule.

In addition to ignoring the input of small business owners during the SBREFA process, the CFPB back then did not even bother to conduct a cost-benefit analysis of the rule. If it did, it would have shown that the economic impact of the Bureau’s actions would go far beyond just the closures of small businesses.

Think of the ripple effect of a single business closing – every employee out of work, every storefront sitting empty, every customer losing a convenient source of credit. Now multiply that across our state and across the country.

It’s bad enough that Cordray and his people thought that they knew better than small business owners and ignored everything we told them. But the CFPB did not just ignore us. It also chose to ignore our customers.

Every single one of my customers has a unique story, and many of them sent handwritten letters to the CFPB telling those stories about how they value their access to small-dollar loans. The CFPB claimed that it wrote its rule for customers like mine, but when my customers told the Bureau things it did not want to hear, they were tossed aside and ignored.

Now, under new leadership, the CFPB has decided to reconsider portions of its 2017 rule. While the reconsideration is not perfect, it is a positive step towards a rule that will allow small businesses like mine to meet the needs of our customers. I look forward to seeing what the CFPB releases in the coming days, and to continuing to serve our community.

Mickey Mays is the managing partner of Thrifty Loans.

Read the Op-Ed in the Shriveport Times,