CFPB Expected to Cut Payday Repayment Tests in Rule Overhaul

By Evan Weinberger

Payday lenders could escape tighter regulation as the Trump-led Consumer Financial Protection bureau considers eliminating a requirement that they first assess borrowers’ ability to repay loans.

The CFPB is expected to either propose eliminating the rule’s strict ability to repay standards or delaying their effective date so that they can undergo further review, according to multiple sources with knowledge of the rulemaking process.

Other aspects of the CFPB’s rule relating to payments—including disclosures about when money is taken out of consumers’ bank accounts for the first time and restrictions on withdrawals when consumers’ bank accounts have insufficient funds—are expected to survive the bureau’s rulemaking process, the sources said.

The sources, all of whom asked for anonymity because of the sensitivity of the rulemaking process, include former CFPB officials and industry-side attorneys.

A senior CFPB official told Bloomberg Law in an Oct. 18 email that the bureau would have “further announcements about the rule later this month.”

Slow Pace

The CFPB released the payday lending rule in October 2017 in one of former Director Richard Cordray’s final acts before resigning from the bureau to run for governor of Ohio.

The rule would require issuers of small-dollar, short-term, high-interest loans to determine whether consumers can afford the credit. The rule would mandate a 30-day cooling-off period that would block lenders from issuing loans to consumers who have taken out three successive loans in a 30-day period. The rule covers vehicle title loans and some high-cost installments loans in addition to payday loans.

Payday lenders have said that the bureau’s rule, which is scheduled to take effect in August 2019, would be difficult to comply with and put many small lenders out of business.

Many had expected the CFPB under acting Director Mick Mulvaney to move quickly to rescind the payday lending rule after President Donald Trump appointed him Nov. 27 as Cordray’s successor.

Mulvaney, a fierce critic of the bureau during his time serving in Congress, said in January that the CFPB was going to “reconsider” the rule. However, little has been done on the rule since.

Small Team

One former CFPB official said that only a small team of rule writers was working on the redrafted payday lending rule, an effort that is being led by Associate Director David Silberman, a Cordray-era holdover.

Finding CFPB employees to work on the rule has been difficult for the current leadership team. The bureau is not forcing holdovers from the Cordray-era to defang a rule that they spent years working on, and few, if any, such employees are volunteering to do so, the source said.

Many remaining staff have been asking “why would I want to do things to harm people?” the source said.

In addition, CFPB rulewriting teams have been tied up with a several public requests for information about a host of bureau policies that were issued earlier this year, the source said.

Mulvaney’s fulltime job as Office of Management and Budget director has also slowed the rulemaking progress, as he has been forced to split time at the two agencies, sources said.

Lenders Wouldn’t Wait

Mulvaney’s decision not to delay the payday lending rule’s 2019 implementation date has caused discontent among payday lenders and resulted in an April lawsuit to kill the landmark regulation. A federal judge overseeing the case has refused to delay the implementation date even as the litigation moves forward in the U.S. District Court for the Western District of Texas.

The CFPB said in the unified rulemaking agenda released Oct. 17 that it expects to issue a notice of proposed rulemaking on the rule in early 2019, including a review of both its merits and its implementation date.

Consumer advocates are worried that the first-ever federal regulations for the payday industry will lose much of their punch once the revisions are complete.

“If the bureau moves to undo that progress, it will harm millions of American families,” Christopher Peterson, the director of the Consumer Federation of America’s financial services program and a former top CFPB official, told Bloomberg Law in an Oct. 18 phone interview.

To contact the reporter on this story: Evan Weinberger in New York at eweinberger@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com

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