Payday Lending And The New CFPB

The Consumer Financial Protection Bureau and payday loans have had a wild ride over the last 24 months. After a contentious rulemaking process, an even more contentious first draft and then a somewhat less contentious (but still pretty divisive) final rule drafting, the argument about what access consumers should have to shorter-term loans with sky-high interest rates has dragged on.

It’s also a long way from being over.

As we noted when we first covered the final draft of the payday lending rule, Congress retains the power to keep the rule from ever making it into the books, so to speak, through the power of the Congressional Review Act. The CRA not only would prevent the payday lending rule from going into effect, but it would also prevent any similar rule changes from being considered for the next five years.

The CRA has already been used against a CFPB final rule in 2018. The arbitration rule, which would have prevented forced arbitration clauses from being inserted into consumer financial contracts, was overturned by the successful passage of a CRA resolution in both the House of Representatives and Congress.

However, as recently as a few weeks ago, the use of the CRA to block the payday lending rule seemed somewhat unlikely. Though efforts against the arbitration rule were successful, House Republicans could not persuade the colleagues in the Senate to a similar repeal of the CFPB’s prepaid card rule this summer – and it was thought that because payday lending is such a controversial and politically loaded topic, Congress might instead choose to let this pass. The House of Representatives had moved to repeal the arbitration rule within 24 hours of its final draft being published. Two weeks after the final payday lending regulations dropped, no such action had been taken.

But it seems the change of the guard at the CFPB has also changed the calculus on that some. Payday lending rules might be struck down by the CRA after all.

A Bipartisan Effort

As written, the new payday loan rule will require that lenders either verify a borrower’s ability to pay or offer a longer-term installment loan, as well as limiting borrowers to three back-to-back loans. It is not scheduled to go into effect until 2019.

But, if some members of Congress get their way, it will never see the light of day.

After some dormancy on the issue, the House of Representatives passed a CRA resolution Friday that would effectively kill the payday lending rule in its cradle.

The move comes as a bi-partisan effort – somewhat surprising, given the general tenor of Congress at present, particularly when it comes to consumer protection issues – with three Republican and three Democrat co-sponsors.

Those bringing the resolution say the rule, as written, will successfully block consumers’ access to needed funds more successfully than it will protect consumers from anything.

“The rule would leave millions of Americans in a real bind at exactly the time [they] need a fast loan to cover an urgent expense,” said Daniel Press, a policy analyst with the Competitive Enterprise Institute, in a statement after the bill’s introduction.

Supporters of the rule view the situation somewhat differently.

“Payday lenders put cash-strapped Americans in a crippling cycle of 300 percent-interest loan debt,” Yana Miles, senior legislative counsel at the Center for Responsible Lending, said in a statement.

But, other than the bi-partisan support, opponents of the rule have something else on their side – and it’s something rather unexpected: The support of the CFPB’s current director in repealing the CFPB’s rules.

Surprising Support

Who exactly is the interim executive director of the CFPB now that Richard Cordray has stepped down is something of an open question – Cordray appointed his former chief of staff, and President Trump appointed his budget director, Mick Mulvaney. Which one of the two actually has authority to run the CFPB is currently a question for lawyers and judges.

Mulvaney has won the first round in court, as a U.S district judge rejected English’s request for a temporary restraining order to prevent Mulvaney from taking over. But English has said she intends to fight on and will seek a preliminary injunction against Mulvaney and the administration.

For the time being, however, Mulvaney is the interim CFPB director – and he, like Congressional Republicans, supports use of the CRA to dismantle his organizations’ recently finalized rule.

“I would support Congress to move forward with the” Congressional Review Act, said Mulvaney, a former South Carolina congressman in a briefing with reporters, last week.

Mulvaney went on to note that upon taking leadership of the CFPB, he had consulted with the agencies’ lawyers as to whether it would be possible to retool the rule as presented – and that more likely than not, the answer was no.

“It was fairly far out the door by the time we got here,” Mulvaney noted. “It is the more appropriate place … for the Congress to handle it through a CRA resolution.”

Mulvaney also faced tough questions from reporters as to whether his past as a representative who took extensive campaign contributions from the payday lending industry could have inclined him to be overly sympathetic to the industry. Questions that he largely shut down, noting that he was unlikely to influence by campaign contributions at all, since he is no longer an elected officially and never intends to be again.

Moreover, changes could likely have been expected, given the new administration being in place. So far, those changes include a freeze on hiring, enforcement actions and policymaking. Mulvaney also noted that he plans to look at future enforcement actions on a case-by-case basis.

“It’s not at all unusual for a new administration to change positions on various policies,” Mulvaney said during an afternoon briefing with media reporters. “This place will be different … than it was under Mr. (Richard) Cordray.”

What’s Next

The fate of the payday lending rule remains very much up in the air. To successfully repeal via the CRA, the Senate would also have to pass a resolution to block the payday lending rule. That is not impossible, but it’s more difficult in the Senate, where the measure is unlikely to attract a single Democratic vote – and there are several Republican Senators who are considered likely defection risks on such a measure.

Moreover, the clock is ticking: Congress has only 60 legislative days from the publication of the rule in the federal register to invoke the CRA, and the rule passed on Nov. 17. Congress has much to do between now and the end of 2017 – and the Senate’s appetite for kicking off the 2018 election year with a contentious piece of consumer legislation is unknown.

But with an executive director all but asking Congress to repeal his organization’s rule … well, stay tuned.

The CFPB may end up being the most interesting drama on the air this winter.