WASHINGTON–Attorneys general from seven states and the District of Columbia are calling on the Consumer Financial Protection Bureau to tighten rules on payday lenders, saying they believe the CFPB’s proposal doesn’t go far enough.
The attorneys general filed a comment letter with the CFPB on the last day comment was being accepted on rules the agency proposed in June that would seek to crack down on payday lenders and auto title lenders, the so called small-dollar loans that often come with big fees and triple-digit APRs. The CFPB lacks the authority to set interest rate limits, and its proposal instead seeks to require lenders to assess a borrower’s ability to repay.
The CFPB proposal “might encourage future efforts to eliminate stringent state usury caps,” the comment letter reads, according to The Wall Street Journal, which said it obtained a copy of the letter prior to its being filed.
“Critics of interest rate caps say such rules drive borrowers to online lenders that operate across state lines and face fewer regulations, or to illegal loan sharks,” the Journal reported.
In their letter, the attorneys general pointed to the proposed “exemptions” from the new rules’ requirement to verify ability to repay, arguing there is a significant loophole. In this case, the loophole in the proposed rule is that a lender may make six payday loans to one borrower before the ability to repay requirement kicks in. Consumer groups have made similar points in their comment letters to the CFPB.
The Journal reported that the attorneys general’s comment letter also notes the proposal’s new requirements set a “minimum standard” and does not preempt stronger state laws, but that language appears only in the proposal’s preamble. The states represented by the letter also want that language included in the body of the rule.
Approximately one-million comment letters have been sent in response to the CFPB’s payday lending proposal. The agency had said it hopes to have a final rule in place by Q3 2017, but the credit union trade groups have said they believe that’s too optimistic.
In their comment letters, credit unions have been calling for an exemption from the proposal or for the proposal to be scrapped entirely.