WASHINGTON–A consumer group is blasting the CFPB’s announcement it has launched a pilot advisory opinion (AO) program to “publicly address regulatory uncertainty” in its existing regulations.
As CUToday.info reported here, the CFPB said the pilot AO program will allow entities seeking to comply with regulatory requirements to submit a request where uncertainty exists. The Bureau said it will then select topics based on the program’s priorities and make the responses available to the public.
In response, the National Consumer Law Center noted the CFPB announced the pilot without notice and comment, with financial institutions invited to submit requests for regulatory clarifications in areas of “substantive importance.”
“The advisory opinions will then be issued by the CFPB, without notice-and-public comment, on the basis of confidential information submitted by the financial institution,” the NCLC said. “Only entities subject to the CFPB’s jurisdiction may request these advisory opinions, and the advisory opinions will provide safe harbor protections for financial institutions under all major consumer protection laws.”
‘Offensive and Contrary’
“The CFPB’s plan to reduce protections in areas of ‘substantive importance’ with no public input is offensive and contrary to the CFPB’s mandate,” said NCLC Associate Director Lauren Saunders. “Now, more than ever, when communities of color are under siege, the CFPB must listen to their voices and those of all homeowners, borrowers, and families affected by financial industry abuses and put consumers first."
‘Eviscerated’ Rate Caps
Separately, a new final rule approved by the FDIC will encourage “high-cost, non-bank lenders to launder their loans through banks in order to offer triple-digit interest loans in states with usury laws,” according to the Consumer Federation of America.
The CFA noted the Office of the Comptroller of the Currency finalized a similar rule last month, however most banks participating in rent-a-bank schemes are FDIC-supervised.
“The FDIC’s rule will facilitate the spread of predatory, high-cost lenders, and promote the evasion of state usury laws during a time of unprecedented financial challenges,” said Rachel Weintraub, Legislative Director and General Counsel with the Consumer Federation of America. “CFA joined numerous other consumer, civil rights, faith, and small business organizations, as well as a bipartisan group of Attorneys Generals, to condemn these rules because they undermine state efforts to stop predatory lenders from taking advantage of consumers.”
“States have seen the financial wreckage caused by predatory lenders that target the financially distressed and leave them in a devastating cycle of debt,” said Rachel Gittleman, Financial Services Outreach Manager with CFA. “Consequently, states have enacted interest rate caps, which have proven to be the most effective way to protect consumers from unaffordable loans. The FDIC joins the OCC in paving the way for predatory lenders to circumvent state rate caps in the midst of a financial crisis, when they should be protecting consumers rather than enabling rent-a-bank schemes.”
Transferring Loans
The CFA said the rules allow banks, which are generally exempt from state rate caps, to sell, assign, or transfer a loan to non-bank lenders and deem that the interest rates permissible by the bank remain permissible after the transfer.
“High-cost lenders take advantage of this exemption by entering into rent-a-bank schemes where they launder loans through banks to be able to charge exorbitant interest rates, well above state usury rates. Forty-five states, as well as D.C., have interest rate caps on many types of small loans,” the organization said.