Final Isn’t Necessarily Final if CFPB Payday Rule Released

By Rob Tricchinelli

Consumer Financial Protection Bureau Director Richard Cordray could release a final small-dollar lending rule before departing for a possible run for governor in Ohio, although that won’t guarantee it ever goes into effect.

Whomever President Donald Trump chooses to replace Cordray could delay its implementation, or lawmakers could block the rule using the Congressional Review Act.

The politics surrounding payday lending are more jumbled than on other rules released by the CFPB. The industry is seen as a less-than-attractive political bedfellow by some Republicans, according to Hill aides. There’s also no natural strawman, as is the case with a rule banning mandatory arbitration clauses, which opponents decry as a giveaway to trial lawyers.

Industry groups are looking for help blocking the rule among Democrats who previously have defended payday loans as a source of much-needed credit of last resort for low-income consumers. Three of those Democrats—Reps. Alcee Hastings (Fla.), Henry Cuellar (Texas) and Collin Peterson (Minn.)—voted Sept. 14 in favor of an amendment to an appropriations bill that would have stripped the CFPB’s payday-lending rule authority.

“The path of this rule will be the most complicated of any rule ever promulgated by any agency,” Lisa McGreevy, president and chief executive officer of the Online Lenders Alliance, told Bloomberg BNA in an interview.

Payday loans, generally required to be repaid in a single payment on receipt of the borrower’s next paycheck, have been on the CFPB’s radar since at least 2013, when the bureau started accepting related consumer complaints. The CFPB proposed a rule in 2015 that would require the lenders to determine whether borrowers have the ability to repay loans and to limit the number of loans a borrower can take out in quick succession.

Congressional Review

If the CFPB’s most recent final rule, barring mandatory arbitration, is any guide, House and Senate resolutions to block the payday rule using the Congressional Review Act will likely soon follow.

That law requires simple majorities in both chambers, and it would prevent the bureau from adopting a rule with “substantially the same form” in the future.

Republicans have tried using the CRA to nullify other CFPB rules, but unity among 48 senators in the Democratic caucus, combined with a few GOP defections, has so far thwarted those attempts.

A House-passed attempt to negate the mandatory arbitration rule has yet to come up for a Senate vote, and an effort to scotch a 2016 rule on prepaid cards never came to a vote in either chamber.

If a legislative effort to negate the rule fails, a new director could delay the rule’s effective date to “buy more time to reconsider the rule,” Dan Kearney, a partner at Wilmer Cutler Pickering Hale and Dorr LLP in Washington, told Bloomberg BNA. “Companies could petition the new director” as well, he said, “to allow the bureau to reconsider the rule potentially in an accelerated timeframe.”

“There are a few scenarios that could result in a change,” he said.

Any administrative effort to weaken the rule after adoption would be subject to limitations in the Administrative Procedures Act.

“A fundamental principle of administrative law is that agencies have to explain what they’re doing rationally,” Kearney said. “That’s going to constrain the new director, too, with respect to changing the effective date of any rule that Cordray issues.”

More Partisanship?

To date, resolutions to roll back rules using the CRA have been largely partisan affairs, but payday lending could be different, given some lawmakers’ support for the industry.

“There are members who don’t want to kill the arbitration rule, but they may have a different viewpoint on the small-dollar rule,” Edward D’Alessio, the executive director of industry group Financial Service Centers of America, told Bloomberg BNA in an interview.

Rep. Alcee Hastings spearheaded an April 2015 letter to the CFPB from nearly the entire Florida delegation cautioning against a “one-size-fits-all policy.” That letter included signatures from Democratic Florida Reps. Kathy Castor, Ted Deutch, Lois Frankel, Debbie Wasserman Schultz, and Frederica Wilson.

Hastings remained critical of Cordray even as the bureau was preparing to drop the rule. “Had [Cordray] followed Florida as a template, then I would be for it,” Hastings told Bloomberg BNA on Sept. 14. “But he did not, and I think the data they have is flawed.”

“He was on a mission, and that’s to destroy payday lenders,” Hastings said, adding, “you cannot go to Bank of America and get a $200 loan if your lights are out and your child is sick.”

At a February 2016 hearing, Rep. David Scott (D-Ga.) similarly accused the CFPB of “trying to destroy small-dollar loans.”

Hastings and Scott were among the top Democratic recipients of campaign contributions from the payday lending industry during the 2016 campaign as well, according to Open Secrets. Most industry campaign cash goes to Republicans, but Cuellar and Rep. Kyrsten Sinema (D-Ariz.), now a 2018 Senate candidate, were also among the top recipients.

In the Senate, Democratic Sens. Heidi Heitkamp (N.D.), Joe Manchin (W.Va.), and Claire McCaskill (Mo.), all up for re-election in 2018, warned in an October comment letter that the CFPB proposal could “unintentionally cut off consumer access to credit.”

Trade groups have similarly argued the rule will force people seeking small loans away from nonbank financial service centers and toward offshore or illicit lenders.

“Members on both sides of the aisle are going to realize that this rule is way over the top for just normal people who need a couple hundred bucks to make ends meet or meet an emergency,” D’Alessio said.

Votes Versus Rhetoric

Nevertheless, several Hill aides and analysts told Bloomberg BNA any congressional effort to undo a small-dollar rule is far from a sure thing.

“Democrats that used to be apprehensive about a payday rule are not as apprehensive as they used to be,” Brian Gardner, managing director at Keefe, Bruyette & Woods, told Bloomberg BNA in an interview. “I don’t hear as much pushback from Democrats about the rule as I used to. I doubt that any Democrats will vote for any CRA resolution.”

There remains the possibility of more GOP defections, as well.

“There will once again be no Dem votes, and at least a couple of GOP moderates—perhaps the same seen at risk on the arbitration rule—might once again be seen at risk to voting no,” Charles Gabriel, president of Capital Alpha Partners in Washington, told Bloomberg BNA.

Fifty votes in the Senate is the magic number, given Vice President Mike Pence’s power to break a tie. “I don’t see where the 50 votes are to block any kind of payday rule,” Gardner said.

To contact the reporter on this story: Rob Tricchinelli in Washington at rtricchinelli@bna.com

To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com

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