More than One Million Letters Sent to CFPB on Small-Dollar Lending Rule

With the comment period for the small-dollar loan proposal closing last week, some news outlets are reporting that more than a million comments were received by the Consumer Financial Protection Bureau.

In June, the CFPB released its proposed rule which is designed to rein in the abuses of short term lenders like pay day and vehicle title lenders whose customers sometimes find themselves in a cycle of debt.

The proposal also negatively impacts the traditional installment lending industry, which has operated for 100 years in communities across the US and deals only in underwritten loans that are based on affordable payments that are made in equal monthly installments, based on the consumer’s ability to pay.

The million plus comment letters represent people who are against and who support the 1,300-page proposal.

The American Financial Services Association (AFSA) and many of its members and their customers submitted comment letters before the October 7 deadline.

 AFSA pointed out in its letter that traditional installment loans, which provide safe, affordable loans and have been around for a hundred years, should be exempted from the proposed rule. If they are not exempted, “… consumers will turn to unlicensed and unregulated online lenders which will lead them into hopeless financial quagmires.”

If the CFPB chooses not exempt AFSA members in the traditional installment loan industry, AFSA illustrates specific changes for the CFPB to consider to the Proposed Rule including:

  • eliminating the prohibition against evasion,
  • revising the definition of total cost of credit,
  • eliminating voluntary leveraged payment mechanisms as a trigger for coverage,
  • modifying the ability-to-repay requirements to allow lenders more flexibility,
  • modifying the restrictions on refinancing,
  • revising the payment procedures,
  • eliminating the mandatory credit reporting requirement,
  • and extending the effective date.

While AFSA shares the CFPB’s concern that certain bad actors in the payday and vehicle title industries can lead their customers into a “cycle-of-debt,” the trade association pointed out numerous times in its letter that AFSA member companies in the traditional installment loan industry provide safe and affordable loans that are fully amortized in affordable monthly payments that are based on a customer’s ability to repay and therefore, should not be covered under the proposed rule.

The Small Business Administration (SBA) also weighed in on the damage this rule could do in communities

"Imposing these strict regulations may deprive consumers of a means of addressing their financial situation," the SBA wrote. "The CFPB has underestimated the potential economic impact of this rulemaking on small entities."

Detractors and supporters did agree on one thing, however. The CFPB proposal needs a lot of work.

"The rule has gotten hammered from all sides; nobody likes this," said Alexander Monterrubio, director of regulatory affairs at the National Association of Federal Credit Unions. "There are a number of problems if you can't get any level of support from any of the interested stakeholders."

"Borrowers want small installment payments, lower prices and quick approvals," said Alex Horowitz, a senior officer at the Pew Charitable Trusts, which has advocated for curbs on payday lenders. "The proposed rule would not accomplish those three goals."