It has been about six weeks since the CFPB published its Outline of Proposals “under consideration” for rulemaking on the subject of short term, small dollar loans. This category of loans touches millions of consumer loan transactions annually, everything from car title loans to traditional installment loans. The initial proposals in the CFPB’s 57-page outline are complex. And, it is vital to the American economy that the CFPB gets it right. That is, the ultimate rulemaking must control undesirable and harmful loans while not suppressing fair consumer loans. The American economy is fueled on consumer finance.
The CFPB is conducting its Small Business Regulatory Enforcement Fairness Act Panel discussions. This “SBREFA” process is mandated by law. Through this process, the CFPB is hearing from all segments of the consumer finance industry with what the various constituencies think about the proposal, including what parts are unworkable in the eyes of the players. It may well be 2016 before the CFPB is in a position to issue a final rule, and 2017 before it becomes effective.
Traditional installment lenders are working with the CFPB to give context to the possible problems with parts of the March 26th Proposal. And, while applauding the effort of the CFPB for global rulemaking, there are problems. For example, the restrictions on the use of electronic debit authorization to make payments (turning the transaction into a “covered loan” under the Proposal) are a reversion to 20th Century commerce and not in keeping with today’s reality. Similarly, treating all vehicle-secured, non-purchase money loans as “covered loans,” would unnecessarily eliminate loans to many deserving borrowers who have good collateral to support fair lending.
The key for the CFPB is to come up with a formula that works—that doesn’t throw the baby out with the bathwater. If done right, this rulemaking will benefit consumers without harming the consumer finance industry.
Next week, we will discuss sound characteristics of an installment loan that can be the measuring devices that the CFPB can employ in fashioning a rule that works.