The comment period for the CFPB’s proposed rule on Payday, Title and High-Cost Installment Loans ended Friday, October 7, 2016. The CFPB has its work cut out for it in analyzing and responding to the comments it has received.
We have submitted comments on behalf of several clients, including comments arguing that: (1) the 36% all-in APR “rate trigger” for defining covered longer-term loans functions as an unlawful usury limit; (2) multiple provisions of the proposed rule are unduly restrictive; and (3) the coverage exemption for certain purchase-money loans should be expanded to cover unsecured loans and loans financing sales of services. In addition to our comments and those of other industry members opposing the proposal, borrowers in danger of losing access to covered loans submitted over 1,000,000 largely individualized comments opposing the restrictions of the proposed rule and individuals opposed to covered loans submitted 400,000 comments. So far as we know, this level of commentary is unprecedented. It is unclear how the CFPB will manage the process of reviewing, analyzing and responding to the comments, what resources the CFPB will bring to bear on the project or how long it will take.
Like other commentators, we have made the point that the CFPB has failed to conduct a serious cost-benefit analysis of covered loans and the consequences of its proposal, as required by the Dodd-Frank Act. Rather, it has assumed that long-term or repeated use of payday loans is harmful to consumers.
Gaps in the CFPB’s research and analysis include the following:
- The CFPB has reported no internal research showing that, on balance, the consumer injury and costs of payday and high-rate installment loans exceed the benefits to consumers. It finds only “mixed” evidentiary support for any rulemaking and reports only a handful of negative studies that measure any indicia of overall consumer well-being.
- The Bureau concedes it is unaware of any borrower surveys in the markets for covered longer-term payday loans. None of the studies cited by the Bureau focuses on the welfare impacts of such loans. Thus, the Bureau has proposed to regulate and potentially destroy a product it has not studied.
- No study cited by the Bureau finds a causal connection between long-term or repeated use of covered loans and resulting consumer injury, and no study supports the Bureau’s arbitrary decision to cap the aggregate duration of most short-term payday loans to less than 90 days in any 12-month period.
- All of the research conducted or cited by the Bureau addresses covered loans at an APR in the 300% range, not the 36% level used by the Bureau to trigger coverage of longer-term loans under the proposed rule.
- The Bureau fails to explain why it is applying more vigorous verification and ability to repay requirements to payday loans than to mortgages and credit card loans—products that typically involve far greater dollar amounts and a lien on the borrower’s home in the case of a mortgage loan—and accordingly pose much greater risks to consumers.
We hope that the comments submitted to the CFPB, including the 1,000,000 comments from borrowers, who know best the impact of covered loans on their lives and what loss of access to such loans will mean, will encourage the CFPB to withdraw its proposal and conduct serious additional research.