Will Payday Loan Proposal Impact State Regulation?

June 14, 2016 at 9:02 am Leave a comment

One of the interesting concerns I’ve heard about the CFPB’s payday loan proposal is that it might water down stricter state-level bans.  Legally, the CFPB is making it absolutely clear that states are free to impose tougher standards for payday loans than those outlined in these regulations.  Politically speaking, however, the establishment of these baseline standards may ironically make it less likely that states like New York will continue to effectively outlaw payday loans.

First, from a legal standpoint the CFPB makes crystal clear in its preamble to the proposal that its intent is to establish a baseline of payday loan protections not a ceiling.  For example, page 141 of the draft document (i.e. the one not published in the Federal Register) explains that Dodd-Frank authorizes the state laws and regulations that provide greater consumer protections than federal laws, provided they are not inconsistent.  It then explains that “it believes that the fee and interest rate caps in these States would provide greater consumer protections than, and would not be inconsistent with, the requirements of the proposed rule.”   It further explains in FN 414 that “The Bureau also believes that the requirements of the proposed rule would coexist with applicable laws in cities and other localities, and the Bureau does not intend for the proposed rule to annul, alter, or affect, or exempt any person from complying with, the regulatory frameworks of cities and other localities to the extent those frameworks provide greater consumer protections or are otherwise not inconsistent with the requirements of the proposed rule.”  As a result, states like New York that cap legal interest rates that can be charged by banks and credit unions would still be allowed to do so.


However, the Bureau’s regulations may have the political effect of undermining the argument for usury caps.  As far back as fifteen years ago, I remember payday lobbyists arguing that payday loans were being made to New Yorkers with or without the state’s approval.  This reality is even more important now that so much lending takes place over the Internet.  If and when the CFPB’s regulations get finalized, these same lobbyists will argue that so long as loans conform with federal requirements, why should businesses based in New York be prohibited from offering them?  After all, if they comply with the CFPB’s standards, then surly these loans should be authorized by state regulators.

Father Knows best

Here is a leave it to beaver morality tale with a bizarre twist.

Anselmo Tapia’s kids were reading an article about a bank robbery in Bridgeview, Ill., a suburb of Chicago, when they realized that the robber in the surveillance photo looked an awful lot like Dad.  The kids confronted him with their suspicions and instead of responding with “What?  Come on you crazy kids, you’re gonna be late for school” he admitted that he was, in fact, the offending party.  He went down to the Sheriff’s office and turned himself in.   I wonder how much time he’s going to get and if the kids will keep up with the news in his absence.


Entry filed under: General, New York State, Regulatory. Tags: , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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