WASHINGTON–The Pew Charitable Trusts are expressing strong objections to a proposal by the Consumer Financial Protection Bureau to eliminate the ability-to-repay rules it finalized for small-dollar loans that are to go into effect later this year.
Both CUNA and NAFCU have submitted comment letters that support eliminating the ability-to-repay rules.
“Based on extensive research conducted over more than eight years, Pew strongly supports efforts to reform the market for payday and similar loans, including the Bureau’s 2017 rule,” Pew wrote. “Pew’s research, as well as that from the CFPB and numerous other sources, makes clear that both single-payment and balloon-payment payday and auto title loans are damaging consumers financially, and that appropriate safeguards can be effective at both protecting consumers and promoting access to more affordable credit.”
Pew said it is “deeply concerned” rescinding the rules will harm consumers and dissuade lenders from providing affordable credit at scale.
‘Severe Misunderstanding’
“The rationale the Bureau has offered for its 2019 proposal is based on a severe misunderstanding or mischaracterization of the market impact of the 2017 final rule,” Pew wrote. “While the Bureau claims that the consumer safeguards of the 2017 final rule should be removed primarily because they will impede access to credit, this claim is not substantiated. As demonstrated in this letter, there will be widespread access to credit under the 2017 rule. Small loans will continue to be available from the same lenders to the same consumers via four primary channels: 1) assessing ability to repay; 2) using the principal step-down option; 3) issuing payday and vehicle title installment loans with terms beyond 45 days; and 4) issuing payday and vehicle title lines of credit with terms beyond 45 days.”
Points Raised
Among the points made by Pew in its letter:
- The Bureau’s 2019 proposal neglected to account for the provision of installment loans and lines of credit in its assessment, repeatedly and incorrectly equating a reduction in the number of short-term balloon payment loans with a decrease in access to credit generally.
- Payday and vehicle title lending, installment lenders, banks, credit unions and financial technology firms have said that they are also ready and willing to extend access to credit under the 2017 final rule, and they are likely to expand their small-dollar lending —"something the Bureau failed to address.”
- In its proposal to change the 2017 final rule, “the Bureau repeatedly paraphrased the rule’s language in ways that substantially change its meaning. Notably, the Bureau ignored entire passages in the 2017 rule discussing the harm that results after a loan is originated, when consumers find themselves unable to pay a large balloon payment on a loan and unable to protect themselves because the lender holds a leveraged payment mechanism (securing payment via access to a checking account or a vehicle title).”
- The 2019 proposal has ignored the foundational rationale for the 2017 rule, failed to refute or reinterpret the bulk of research underpinning it, and has also mischaracterized the rule as being largely based on a concern about borrowers’ expectations at the time a first loan is originated, Pew wrote.
‘Reasonable Minds Can Disagree, But…’
“Reasonable minds can disagree about the value of access to high-cost credit for people who are in difficult financial circumstances,” Pew wrote. “But the evidence base behind the 2017 rule conclusively demonstrates that consumers are suffering substantial injury they cannot reasonably avoid. Moreover, the 2017 rule’s safeguards provide a level playing field and regulatory certainty for lenders, along with strong protections for consumers, while maintaining widespread access to credit.
“If there is an evidence-based rationale for the Bureau’s 2019 proposal, it is not apparent within its pages. We therefore respectfully urge the Bureau to rescind its 2019 proposal,” Pew continued. “On behalf of Pew’s consumer finance project and many colleagues who have worked with us to protect Americans from harmful practices in the financial sector, we thank you for considering our recommendation.”