It has not been the best of weeks for the Consumer Financial Protection Bureau. Yesterday, the Court of Appeals for the District of Columbia accused the agency of violating due process and imposing an unfair indefinite statute of limitations on enforcement actions, while also declaring that the leadership structure was unconstitutional.
But last Friday, one of the agency’s fellow federal departments also took the CFPB to task, in a comment letter related to a proposed rule on payday lending, title loans, and other high-cost installment loans. The Small Business Administration’s Office of Advocacy accused the CFPB of underestimating the “potential economic impact of this rulemaking on small entities,” and “may force legitimate businesses to cease operation.”
One analysis of the SBA’s comments called them “unusually pointed,” and “strongly worded.” The SBA’s Office of Advocacy is an independent department of the SBA charged with representing small businesses in front of Congress and federal agencies. Its views do not reflect the views of the SBA. The Office of Advocacy held its own roundtable discussions regarding the rule, both before the CFPB held a SBREFA hearing, and after.
If enacted, the proposed rule would require lenders to determine a borrower’s ability to repay a loan prior to lending any funds, would limit the number of attempts a lender could make to automatically withdraw funds from a borrower’s bank account, and require lenders to make certain disclosures prior to withdrawing any funds from a borrower’s account.
Payday lenders have commented that the proposed rule would force them to dramatically alter their business models, perhaps forcing them out of business. The Office of Advocacy accused the CFPB of not considering the impact that the ability to repay requirements will have on the revenues of payday lenders. The comment filed by the Office of Advocacy offered a suggestion to lessen the requirements being placed on lenders to determine a borrower’s ability to repay a loan by removing the step of forcing lenders to conduct a credit check on all loan applicants. Since most applicants are applying for payday loans because they are unable to obtain a credit card or other type of credit, the “credit check is an unnecessary hurdle.”
Advocacy’s comment also requested a shorter cooling-off period between loans for individuals. Originally set at 60 days and then lowered to 30, it still “may be detrimental to their customers as well.”
The comment letter also addresses how the proposed rule will impact credit unions, native American tribes, small businesses, and small communities.