The CFPB Has An Entire Industry In Regulatory Limbo
While the nomination of Kathy Kraninger signals a welcome path forward for the Bureau of Consumer Financial Protection (BCFP), an entire industry remains in regulatory limbo while the clock ticks on a pending regulation released by the bureau last year. For a business, regulatory limbo is a bad thing, creating uncertainty, and delaying or deferring business decisions about the hiring of workers, renewal of leases, refinancing of lines of credit, updating of technology and storefronts and development of new products and services to benefit consumers.
In October of 2017, former BCFP Director Richard Cordray released the Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule (Small Dollar Rule). Recognizing the novelty and extreme complexity of the 1,600 page rule, the bureau directed that it not take effect until August 19, 2019. (Notably, one of the key pillars of the rule, a credit reporting mechanism, does not to this day even exist, and the bureau vaguely asserted it was relying on the market to fill this void.) In January of this year, the BCFP announced that it would engage in a rulemaking to reconsider the Small Dollar Rule. In its recent Rulemaking Agenda, the bureau announced that the new rulemaking would commence in February of 2019. This regulatory limbo has serious consequences for businesses and their employees, and for consumers across America, and that uncertainty is bad for everyone.
The Small Dollar Rule is a perfect example of the overreach that infected the bureau under former Director Cordray. Instead of targeting illegal, unlicensed lenders preying on consumers, it took aim at legal, regulated businesses. In its rush to regulate, the bureau engaged in a deeply flawed rulemaking process that ignored the documented views of businesses that confirmed the devastating effects of the rule. More importantly, the bureau sought to substitute its judgment for the judgment of the millions of Americans who utilize short-term credit products, including payday loans, to make ends meet. Elimination of these products would be devastating to these consumers, who will be forced to turn to dangerous alternatives, including the unregulated black market, to meet their financial needs.
Thankfully, the bureau has now announced its intention to reexamine the Small Dollar Rule. Unfortunately, the announced timeline of February of 2019 as the start of the process does not solve the problem of regulatory limbo, as the August 2019 compliance date still lingers.
Recently, a Texas court reviewing the Small Dollar Rule denied an industry request to stop the clock on the August 2019 compliance date. In doing so, the Court took note of the bureau’s announced intention to reexamine the rule and, therefore, stayed the litigation in order to save judicial and business resources. The Court’s ruling also sets the stage for the BCFP to act to delay the compliance date, and to provide certainty to businesses, and consumers, across the country. Under any circumstances the rule is still subject to judicial review and can be struck down on legal grounds—all the more reason for the bureau to act to delay the compliance date.
Businesses do not know whether to proceed with massive changes in business models, address conflicts with existing state laws, and develop compliance systems required by the current rule. These decisions come with massive price tags and expenditures are required now to have any chance of being in compliance. What’s more, businesses are unable to determine whether to engage in this undertaking when they don’t know what the final rule will even look like.
Acting Director Mulvaney has taken great strides to roll back this harmful regulation and now it’s time to push it across the finish line, delay the implementation date, and provide certainty to business. The administration needs to act quickly before this regulation decimates an entire industry and leaves Americans with absolutely no good financial options. The future and financial freedoms of American consumers and businesses depend on it.
