A year ago this month, the CFPB, amid much fanfare, released its outline of proposals to regulate payday loans, vehicle title loans, and certain installment loans. In the twelve months since then, the Bureau has been working towards release of a proposed regulation that will, by all accounts, fundamentally change (or eliminate) the small dollar lending industry. Consumer finance lenders are holding their collective breath to see if, how and when the new rules will apply.
The next step in the rulemaking process is a Notice of Proposed Rulemaking—a draft of the full regulation. We originally expected the proposed regulation before the end of 2015 (because the CFPB told us to expect it in 2015). After January 1st, we began hearing by the end of February. Now, (at least as of writing this) we do not have a proposed regulation, and the expectation is now before the end of March.
Since the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in 2010, Congressional Democrats and Republicans have lined up along party lines against one another over the CFPB's authority and funding. Democrats largely favor broad CFPB authority consistent with the Obama administration's agenda. On the other side, Republicans have introduced several bills designed to scale back the Bureau's power.
That is what makes a recent development so surprising. The small dollar lending industry gained an unlikely ally in Democratic National Committee Chair Rep. Debbie Wasserman Schultz (D-Fla.).
Earlier this week, the Huffington Post reported that Rep. Wasserman Schultz is co-sponsoring the Consumer Protection and Choice Act that would delay CFPB payday loan rules for two years and allow state payday loan laws to preempt any CFPB regulations. Reportedly, she is working Democratic Party ranks to gain support for the Act.
This is a big deal, especially in light of the imminent proposed regulation. A few takeaways…
This push is primarily focused on payday loans. However, any legislation will almost certainly affect other types of consumer loans covered by the small dollar outline of proposals. In the CFPB's eyes, payday loans are the ‘big fish'. Many in the consumer finance industry believe that installment loans are collateral damage resulting from being viewed as too closely associated with payday loans. If Congress delays or prohibits the CFPB's regulation of payday loans, the Bureau could decide to delay, abandon or restructure the entire proposed regulation.
Over the last few years, from time to time, there have been Congressional Democrats who have sided with the Republicans' efforts to check the CFPB's power. But, this is now coming from the head of the Democratic Party. It is an interesting exercise in ‘what-if politics' to think about what happens if it does pass. Would President Obama sign it into law?
Whether or not any legislation comes from this, it is a substantial crack in the CFPB's foundation of support.