Top CFPB Official Defends Federal Efforts on Payday Lending

By Jeff Bater

Feb. 11 — A top official at the Consumer Financial Protection Bureau (CFPB) defended the agency's regulatory steps on payday lending during a congressional hearing that explored preemption and state regulation of short-term, small-dollar products.

David Silberman, acting deputy director of the bureau, acknowledged under questioning during the hearing of the House Financial Services's Financial Institutions and Consumer Credit Subcommittee that states are enforcing their laws on small-dollar loans.

“What we are doing is establishing a federal law and the states will continue to be able to enforce their laws and their specific requirements in addition to the federal floor that implements the obligation that's been placed on the bureau,” he said.

The CFPB is in the process of developing a proposed rule on payday lending, which is expected early this year. About a year ago, the bureau unveiled an outline of payday lending proposals under consideration. Those proposals would cover short-term credit products that require consumers to pay back the loan in full within 45 days, such as payday loans, deposit advance products, certain open-end lines of credit, and some vehicle title loans.

The proposals would also apply to high-cost, longer-term credit products of more than 45 days where the lender collects payments through access to the consumer’s deposit account or paycheck, or holds a security interest in the consumer’s vehicle and the all-in (including add-on charges) annual percentage rate is more than 36 percent.

State Official Sees Fed Overreach

In prepared remarks for the hearing, Indiana Attorney General Greg Zoeller, a Republican, defended his state's authority, saying Indiana has extensive experience in crafting short-term loan regulations to protect consumers. The testimony referred to “this important matter of preserving states’ rights” and “an ongoing barrage of federal government overreach.”

“Like other states, we have worked hard to strike this balance between access to credit and protections against predatory lenders,” Zoeller said. “The proposed federal regulations would throw this balance off and reduce access to short-term loans for the people in my state and others who need this type of financial assistance the most and who need it from reputable lenders.”

The subcommittee chairman, Rep. Randy Neugebauer (R-Texas), said in an opening statement the legislatures of 35 states have deliberately enacted small-dollar lending laws of varying protections, including and up to outright bans. The remaining 15 states address the issue, either by affirmatively declining to enact an authorizing law to govern the industry, or choosing to regulate through interest rates.

“Crucially, and contrary to the Bureau’s appeal to a greater moral obligation, no state lacks the authority to enact, repeal or amend its own payday and lending laws in order to provide greater protections to its consumers,” Neugebauer said.

Congress Saw Need

Silberman, in his prepared remarks, said payday loans were of a particular concern to Congress when the Dodd-Frank Act was enacted in 2010. He said the law gives the CFPB plenary authority to supervise any entity that offers payday loans regardless of size.

The CFPB receives a great number of complaints over payday lending, and its research has found loans carry high fees and in some cases have led to defaults. “Consumers should be able to meet their needs without finding themselves stuck in an extended debt trap,” Silberman said.

Zoeller called the regulatory framework proposed by the CFPB “extraordinarily broad.”

“It covers not only payday loans, but short-and medium-term loans which can be made by community banks and credit unions as a service to customers,” he said. “The new rule would create an environment that discourages this type of lending by these already heavily regulated institutions. Without this legitimate source of short-term lending, consumers who need these types of funds will be forced to turn elsewhere — likely to unscrupulous lenders where they are at higher risk for abuse.”

To contact the reporter on this story: Jeff Bater in Washington at

To contact the editor responsible for this story: Mike Ferullo in Washington at

For More Information

Hearing testimony can be found