The Small Business Administration’s Office of Advocacy has submitted a comment letter on the CFPB’s proposed payday loan rule that raises concerns about the proposal’s economic impact on small businesses and encourages the CFPB to make various changes to reduce the burden on small businesses.  The letter notes that because Advocacy is an independent office within the U.S. Small Business Administration, the views expressed by Advocacy do not necessarily reflect the views of the SBA or the Administration.

Prior to issuing its proposed payday loan rule, the CFPB convened a SBREFA panel that met with small entity representatives (SERs) to provide input on the proposals under consideration by the CFPB.  The Chief Counsel for Advocacy was a member of the SBREFA panel.  Following the issuance of the proposal, Advocacy held three roundtables to provide an opportunity for all small businesses (such as those that did not serve as SERs) to provide input on the CFPB’s proposal.  According to the comment letter, the roundtable attendees included storefront payday lenders, online lenders, banks, credit unions, tribal representatives, trade associations representing small businesses, and government representatives.  Some of the attendees had served as SERs and the CFPB attended all three roundtables.

In its comment letter, Advocacy raises concerns with various aspects of the proposal based on the input received from roundtable attendees, including the following:

• The CFPB has underestimated the potential impact of its proposal on small entities, having limited its Regulatory Flexibility Act analysis to the costs of the new recordkeeping system, the costs of obtaining verification evidence, and the costs of making an ability to pay (ATR) determination consistent with that evidence.  The CFPB has not provided an adequate estimate of the aggregate impact that the ATR requirements may have on the revenues of small entities if their customers no longer qualify for loans.  Advocacy encourages the CFPB to include these additional costs in its analysis of the proposal’s economic impact.
• Advocacy encourages the CFPB to eliminate some of the ATR requirements such as the credit check requirement which will be costly to small lenders.
• Advocacy encourages the CFPB to eliminate a cooling-off period because of the reduction in revenues that will result or, at a minimum, to provide a cooling off period that is less than 30 days
• Advocacy encourages the CFPB to provide an emergency exception to the presumption of unaffordability and provide clear guidance on the circumstances that would qualify for the exception.
• Advocacy seeks an exemption for small businesses operating in states that currently have payday loan rules and for small credit unions.
• Advocacy encourages the CFPB to allow at least 24 months after publication of a final rule for small businesses to comply.

In addition, because the CFPB’s proposal “may deprive consumers of a means of addressing their financial situation,” Advocacy encourages the CFPB “to reconsider its proposal and develop requirements that protect consumers without jeopardizing their access to legitimate credit in states that do not currently regulate payday lending.”  Advocacy also states that “[i]f the CFPB believes that it is necessary to move forward at this juncture…Advocacy further encourages the CFPB to perform additional research to determine the impact of the changes on small entities and consumers in those states prior to implementing permanent regulations.”