CFPB Proposal Would Gut Payday Loan Rule

February 7, 2019 at 9:20 am 2 comments

Good morning Folks. I’m sure that consumer activists all across the country are fired up this morning as they peruse the CFPB’s proposed regulation eliminating key provisions of the payday lending law originally promulgated in the final days of the reign of the former benign dictator of consumer finance Richard Cordray.

In 2017 the regulation promulgated by the CFPB sought to regulate payday loans by imposing underwriting requirements on lenders. Specifically, the bureau made it an “unfair and abusive practice to make payday loans without reasonably determining that a consumer had the ability to repay the loan.” Critics of this approach argued that baseline underwriting requirements would drive many payday lenders out of business without addressing the continuing need of some consumers to obtain quick short-term financing. The primary concern of most credit unions was originally that the regulation would keep them from making short-term loans at better rates than traditional payday lenders. The CFPB addressed these concerns by allowing credit unions to make short-term loans that complied with NCUA’s Payday Alternative Loan (PAL) criteria.

Yesterday’s proposals push back the effective date of the CFPB’s payday regulations and eliminates the ability to repay underwriting requirements. Lawsuits and the leadership of the CFPB have kept the regulation from ever taking effect.

For what it’s worth, yours truly continues to be ambivalent about the best way to approach the payday lending problem. On the one hand, I find it repugnant that there are businesses which make their living off taking advantage of people in financially desperate situations. On the other hand, the industry exists precisely because some people need short-term financing and driving these lenders out of business isn’t going to change that fact.

What Stress Tests Tell Us About The Economy

It’s that time of year again when the financial regulators outline the criteria that they are going to use to examine the ability of the nation’s large banks to withstand worst case scenario economic shocks. These requirements do not apply to credit unions however NCUA has imposed similar requirements on institutions with $10 billion or more in assets, a requirement it adjusted last April.

The Dodd-Frank Act mandates that financial regulators provide covered banks with the annual stress test scenario by February 15th of each year. This year’s so-called Comprehensive Capital Analysis and Review (CCAR) exercises feature an adverse scenario in which a severe global recession is coupled with a US unemployment rate that rises by more than six percentage points to 10%. Unfortunately, the more I think about it, this scenario is extremely unlikely but not impossible. How would your credit union hold up? Let’s hope we don’t have to find out.

DFS Moves to Block Title Insurance Merger

New York’s Department of Financial Services continued its aggressive policing of the title insurance industry, which has been a hallmark of the Cuomo administration, when it was disclosed on Monday in an SEC filing  that on January 31t, the  DFS  provided Fidelity  with written notice of its opposition to Fidelity’s  proposed acquisition of Stuart Title.  Stuart is a New York company. Since  DFS approval is one of the conditions for the merger to go forward it looks like its negotiators have some work to do.

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

Clock Is Running On The GSE Patch CU’s Need CECL Guidance Now

2 Comments Add your own

  • 1. Sarah  |  February 7, 2019 at 10:17 am

    Now while I don’t profess to know the regulatory framework under which payday lenders function. I wonder if a “better” tactic would be to impose a federal upper limit on the amount of interest that could be charged. This be coupled with some underwriting standards, for instance you can’t loan more X percentage of their pay as shown on their last paystub, but not tie it to credit worthiness. I’ve known many people over the years that have used these loans to help cover an emergency or to give them access to quick cash for some other purpose. I just feel like it’s an industry that needs to be more closely regulated. Without some regulation aren’t these businesses just legal loan sharks?

    Reply
  • […] yesterday. I haven’t been able to watch the testimony yet and I must be missing something. A few weeks ago the CFPB proposed regulations that would gut the payday lending rules by eliminating the requirement that lenders […]

    Reply

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Authored By:

Henry Meier, Esq., Senior Vice President, 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. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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