Last week in Atlanta, the American Financial Services Association (AFSA) and the National Association of Consumer Credit Administrators (NACCA) held a forum to discuss legal issues. This annual meeting is an opportunity for regulators and industry to compare notes on how one another is doing its job. Discussions are frank and helpful to both. Speakers addressed credit reporting, identity fraud, social media and technology, subprime auto finance—and of course, the CFPB.
I had the pleasure and privilege to speak about the CFPB Outline of Proposals concerning short term, small dollar lending. It was an engaging opportunity to talk to the regulators who will inevitably be on the front lines of enforcing any rule that the CFPB ultimately promulgates.
We know the CFPB’s proclivity and have written often about it. After all, the very language they use to discuss the Proposal – “debt trap prevention” and “debt trap protection” – gives us a pretty good idea of where the CFPB stands on short term, small dollar lending.
I tried to bring some balance to the discussion, focusing my presentation on:
- The very different types of loans—payday on the one hand, and traditional installment loans on the other—which this Proposal is unfortunately lumping together.
- The very real distinction between a fully underwritten loan with full amortization and no balloon payment versus a loan based solely upon collateral value and/or when the next paycheck comes.
- The real problem of constructing “an ability to repay” regimen for small dollar loans.
- The real problem with using an “all-in APR” which will have no comparison value and will cost industry to produce such information for no necessary purpose.
- Treating traditional installment loans as though they are similar to residential mortgage loans.
- The importance of electronic ACH payment in the 21st
In my conversations with state regulators, I am convinced that they have a better understanding of the nuances of the consumer financial products and services than does the CFPB, perhaps based upon a long history with the consumer transactions that are about to be regulated.
Did the CFPB see it my way? As the Zen Master says… We’ll see.