The CFPB began its work tackling the direct issues that Congress and the President tasked it with in The Dodd-Frank Act of 2010. It worked on straightening out the home mortgage industry that had led us into the Great Recession. It next gave attention to the decades old mess that the unworkable relationship between Regulation Z (Truth-In-Lending) and Regulation X (Real Estate Settlement Procedures Act) was causing lenders and consumers alike in the origination and servicing of home loans. The resulting changes to these regulations have certainly helped right the home mortgage lending industry.
The CFPB was also tasked under Dodd-Frank with studying payday loans, student loans and arbitration. And interestingly enough, the way the CFPB has gone about addressing these matters seems to be based on the study of complaints that the CFPB has entertained and encouraged by establishing the Complaint Portal and inviting America's consumers to come-on inside. The analysis of this complaint data has led the CFPB down a path toward regulating more and more consumer financial related industries—including the traditional installment lending industry.
We have been analyzing the treatment by the CFPB of the payday industry and the student loan industry. Not surprisingly, the CFPB's analysis – largely based on complaints that it receives – is what drives the movement to regulate. Interestingly, in the industries studied, consumer complaints seem to be more about debt collection than about payday loans or student loans.
The CFPB has used the statutory basis to regulate the specifically identified targets under Dodd-Frank; and it is using its authority to identify “larger participants” to subject other industries to regulation, including student loans, consumer reporting and debt collection.
It is instructive that in tackling these industries, the CFPB has in part justified its rulemaking based on the volume of complaints it has received. And, in analyzing the complaints, what quickly becomes apparent is that most complaints are really about debt collection. So annoying, intimidating and unlawful collection activity has been used by the CFPB to initiate rulemaking in a number of segments of the consumer marketplace. That is, the CFPB has used debt collection as the rationale to regulate various consumer loan products rather than a defect or deficiency in the loan product itself.
And that brings us to traditional installment lending where we have a complaint. The CFPB looked at the voluminous complaints involving “payday and title pledge.” Then, without any statistically sound evidence, it hypothesized that traditional installment loans with vehicle security as collateral must be part of the same complaint universe—although, the data concerning traditional installment lending simply does not support the inclusion of traditional installment loans within the CFPB's latest rulemaking proposal addressing payday and title pledge loans.
This failure on the part of the CFPB is what is causing severe headaches for traditional installment lenders today. If vehicle secured traditional installment lending is retained within the final Rule, it is the American consumers who will experience the severe headaches.