Battle Over Payday Lending Shifts To Public Comments

The battle over payday lending — specifically, how tough U.S. federal rule will be in governing the industry — is heating up as an important deadline looms. Letters favorable to the payday lending industry reportedly are flooding in to authorities before the May 15 cutoff for public comment regarding a proposed policy change.

At issue are payday lending rules from the U.S. Consumer Financial Protection Bureau (CFPB). They were drafted under the tenure of Richard Cordray, who had served as the previous director of that agency. The Obama-era appointee sought to put in place new underwriting requirements for lenders (such as verifying borrowers’ ability to repay the payday loans). The rule also had another component, focused on how often a lender can try to debit payments from a customer’s bank account.

New Director Kathleen Kraninger has proposed eliminating one of the components of the rules — the requirement that lenders would have had to verify a borrower’s income, debt and spending habits to assess their borrowing threshold before underwriting their loan — or avoid this stipulation by changing their loan type to an installment loan, paid over a set amount of time agreed upon at the outset of the loan.

Public Comments

According to an article in The Wall Street Journal, “payday lenders have been mobilizing their customers to push the federal government to ease Obama-era regulations of the industry, according to research by a consumer advocacy group that favors the rules.” With the 90-day public comment period on the proposed payday lending period about to expire, the paper reported, “lenders have organized thousands of customers who have sent in duplicated comments in support of the change, said Allied Progress, the consumer group.”

That group, according to report, “found that nearly a quarter of the 16,761 public comments submitted as of May 11 contained duplicated language supporting the latest regulatory revision.” As the newspaper noted, it’s common for various parties with a stake in regulatory changes to make available to citizens and consumers pre-written comments and letters for submission to regulatory agencies and lawmakers.

Some 26,000 comments have been submitted around the payday loan proposal.

This apparent controversy over comment letters is only the latest skirmish in the ongoing battle over how to govern the payday loan industry in the U.S. In March, for instance, a federal judge ordered a stay on the August 2019 compliance date tied to the “payday lending rule” mandated roughly two years ago by the CFPB.

CFPB Debates

The debate over the payday lending rules is part of a larger struggle about the direction, purpose and powers of the CFPB, which was created in the wake of the 2008 financial crash.

Before Kraninger took over at the federal agency, there was Interim Director Mick Mulvaney, who, during his tenure, made his dissatisfaction with the regulations as written (now overturned) well known. When Kraninger was sworn in as the permanent head of the CFPB in December 2018, it was widely expected for the agency to soon announce a change in the proposed rules, and likely overhaul some of its more controversial points.

In the public statement announcing the decision, the CFPB noted that the measures as written could “reduce access to credit and competition in states that have determined that it is in their residents’ interests to be able to use such products,” and thus need both further review and revisions. Kraninger further said she looked forward to the process being more collaborative.

“The Bureau will evaluate the comments, weigh the evidence and then make its decision,” Kraninger said of the effort to overhaul the rules. “In the meantime, I look forward to working with fellow state and federal regulators to enforce the law against bad actors, and encourage robust market competition to improve access, quality and cost of credit for consumers.”

Opponents of the rule change have sounded their own alarms.

“The Kraninger CFPB is giving an early Valentine’s present to payday lenders, helping them continue trapping Americans in crippling cycles of debt,” said Rebecca Borné, senior policy counsel at the Center for Responsible Lending, when the new proposals were announced.

No doubt this controversy over payday lending will continue after the close of public comments.