Final Small-Dollar Lending Rule Ensures Millions Will Have Access to Regulated Credit

July 7, 2020 | Federal & CFPB Regulations

ALEXANDRIA, VA – D. Lynn DeVault, Chairman of the Community Financial Services Association of America (CFSA), today released the following statement regarding the Consumer Financial Protection Bureau’s (CFPB) final rule rescinding portions of its 2017 small-dollar lending rule:

“While we are still reviewing the new rule, it is clear that the CFPB’s decision to issue a revised final rule will benefit millions of American consumers. The CFPB’s action will ensure that essential credit continues to flow to communities and consumers across the country, which is especially important in these unprecedented times.

“The ability-to-repay provisions were simply unworkable and imposed burdens on consumers and lenders in the form of unreasonable levels of documentation not even required of mortgage lenders. The provisions set requirements that no operator, especially a small business, could meet and imposed complex and costly regulations that would have effectively put lenders out of business altogether rather than protect consumers. The Bureau’s own simulations projected that the reborrowing restrictions imposed by the now eliminated ability-to-repay requirements alone would have caused loan volume to decrease by 60 to 80 percent, severely restricting access to credit.

“While overall today’s announcement is a positive development, we are very disappointed the CFPB chose to leave the payment provisions of the original rule intact. The Bureau’s own evidence didn’t support its payment practices provisions, which were flawed and based on unsupported data, much like the ability-to-repay provisions. These payment provisions are unnecessary and duplicative given the existence of various state and federal rules already governing the industry.

“We remain concerned that the Bureau continues to bypass the ongoing issue of illegal, unregulated lenders operating in the shadows. We encourage the current leadership of the CFPB to address the issue of illegal lenders, as consumers remain vulnerable to bad actors and their unscrupulous lending practices, especially during the current economic uncertainty.

“The 2017 rule, crafted under former Director Richard Cordray, was based on a pre-determined, partisan agenda dictated by special interests and Beltway activists rather than the very consumers the CFPB purported to protect. The original rule rested on unfounded presumptions of harm and misperceptions about consumer behavior and was motivated by a deeply paternalistic view that consumers could not be trusted with the freedom to make their own financial decisions. In pursuit of its pre-determined agenda, Cordray’s Bureau disregarded unbiased research and ignored the more than one million customers who spoke out vociferously against the original rule.

“On top of the impact on consumers, the original rule would have shuttered hundreds of small businesses and eliminated thousands of jobs. According to a study by Charles River Associates, the original rule would have forced more than 80 percent of small businesses in the industry to close. Even the Small Business Administration’s Office of Advocacy under the Obama Administration expressed concerns about the rule’s harmful impact on small businesses.

“We are encouraged by the Bureau’s new approach that more appropriately balances consumer protection with access to credit, and look forward to working with regulators to ensure that the voices of Americans seeking access to legal, licensed small-dollar loans continue to be prioritized in any rulemaking going forward.”