New Prepaid Card Rules Survived The CRA (Payday Lending Regs Might Not)

The Consumer Financial Protection Bureau’s (CFPB) rulemaking authority survived its first big challenge from the now Republican-dominated houses of Congress when an effort to use the Congressional Review Act (CRA) to repeal new rules for the prepaid card industry passed by the consumer watchdog in the waning days of the Obama administration.

Those new rules require greater disclosures and overdraft limits for the cards that can be loaded with cash for consumer use.

The timing of how those rules went into effect — and the fact that they were mildly controversial, particularly in regards to the overdraft regulations — meant that it had seemed possible that Congress would exercise its authority under the CRA to repeal the law — but doing was subject to a ticking clock. Legislators only had until last Thursday (May 12) to pass a disapproval resolution in both houses of Congress, which would effectively kill the rule.

Such a resolution was drafted by vocal CFPB opponent Senator David Perdue of Georgia, but according to congressional aides and advocacy groups cited by Reuters, the resolution just couldn’t get the votes.

Consumer advocacy groups cheered the outcome as a victory for the rights of customers everywhere — while opponents to the group like Senator Purdue vowed to keep the pressure on and escalating in its attempts to rein in the agency’s considerable authority.

And it seems that congressional Republicans will have at least two more bites at the CRA repeal apple — and with CFPB rules that are more controversial than the prepaid card rules.

Arbitration and PayDay Lending

Though the CFPB managed to get a final rule out on prepaid cards out before the clock struck midnight on 2016 and the Obama administration, proposed rules on payday lenders, debt collectors and mandatory arbitration clauses in consumer finance contracts have not been finalized.

The payday lending rule is notoriously controversial — and nearly universally hated by Republican legislators. The mandatory arbitration rules are somewhat less known — though again, conservative lawmakers are famously skeptical of its usefulness versus the likelihood it will flood the courts with frivolous class-action suits. Congress is expected to kill it swiftly with a CRA resolution if it is made official.

“Congress’ potential use of the CRA as a weapon to undo the CFPB’s rulemakings does have a chilling effect on the agency,” former CFPB assistant director and deputy general counsel Quyen Truong noted in an interview with Bloomberg.

The CRA also carries with it an additional blow to regulations it strikes down. If a rule is killed by the rule, the agency that made it is barred from proposing a similar rule in the future without specific approval from Congress. If the Congress doesn’t like the CFPB’s payday lending rule — and repeals it with the CRA — the CFPB is very likely out of the business of payday regulations until Congress officially gives them permission to come in off the bench.

“With regulations, they are likely slowing things down to rethink how to best proceed, especially with the threat of the Congressional Review Act,” Gerry Sachs, former senior counsel for policy and strategy with the enforcement office of the CFPB.

An Uptick In Enforcement?

Observers are wondering if the CFPB’s rulemaking authority is essentially on hold until such time as it isn’t concerned that most of its proposed rules face certain death at the hands of Congress and what the watchdog group will do to fill its time.

So far, it looks like enforcements will be the answer to that question.

In 2017 so far, the bureau has brought 20 enforcement actions; if it keeps that pace up, it will pass its record of 56 in 2015.

“We can’t make rules, so enforce the ones we already have harder” seems to be the order of the day.

But these days, the CFPB isn’t looking quite as invincible as it did a year ago. Going into the summer of 2016, banks mostly just paid the fine, admitted nothing about their guilt or innocence, and moved on.

“They didn’t see any upside to active litigation with their regulators,” Benjamin Olson, a partner at Buckley Sandler LLP in Washington and former CFPB deputy assistant director for regulations, noted.

But the new president has made his hostility to the CFPB and the Dodd-Frank legislation that created it well known. Congress these days is equally excited to rein in its power, and in a few weeks a federal court will decide if the CFPB structure is constitutional at all. The CFPB is looking ready to be challenged — and banks seem to be lining up to do it.

The CFPB may not be doomed as headlines earlier this year indicated. But it is already far less powerful than it was even six months ago — with more hits likely to come.