The BCFP/CFPB and Installment Lending

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The BCFP/CFPB and Installment Lending


 Soon after the CFPB was established, its examination of areas it considered sources of concern in financial services resulted in official investigations, with some sources claiming that a requirement to investigate at least two firms per subject area was seen as standard by bureau staff and did not require any evidence of wrongdoing at firms under investigation. This had huge implications for businesses. The receipt of a “Civil Investigative Demand” or CID from the CFPB (a subpoena for documents and information that companies had 20 days in which to comply) created a significant compliance burden for companies, but worse, was generally accompanied by attention from CFPB’s high-profile public relations machine, which caused immense reputational damage, affecting valuation, sales, staff morale and the ability to conduct business.

Companies under investigation who chose to challenge the bureau found they were prevented from seeking relief in federal court until all administrative processes were exhausted. If a case did make it that far, the courts were bound to defer to the CFPB Director’s judgment unless he had clearly misinterpreted a law.

This immediate consequence of this approach to investigation led many firms to cut their losses and pay fines, especially if they were accused of subjective “unfair, deceptive, or abusive acts or practices.” With no meaningful opportunity to defend themselves, many businesses paid millions of dollars, regardless of guilt or harm to consumers. The size of the fines had nothing to do with whatever wrongdoing companies were accused of. CFPB demanded targets’ financial statements to calculate the maximum fines they could afford to pay.

A notable exception to this, was an installment lending member of NILA, under investigation, which declined to reach an accommodation with the CFPB. After four years of scrutiny the CFPB closed the investigation on the grounds that no wrongdoing had been found.

 The “Payday Lending Rule”

 Of critical importance to NILA was the development of new rules relating to small-dollar loans being generated under the CFPB’s rulemaking function. The CFPB’s responsibility is to implement and enforce federal consumer financial laws to ensure that all consumers have access to markets for consumer financial products and services that are fair, transparent, and competitive.

NILA and our colleagues at the American Financial Services Association (AFSA) engaged with the bureau repeatedly during the rulemaking process underscoring the differences between installment and payday-type loans until it became clear that the focus of the new rule would primarily be payday and title lending. The Final Rule reflected NILA’s position by making an important distinction between beneficial traditional installment lending, and payday loans.

Moreover, during congressional testimony when asked about the proposed rule, Director Cordray noted how essential it was that any rule focus on making sure there is room for responsible loans such as installment lending. In its final form, the rule stated that it was

“…..aimed at stopping payday debt traps by requiring lenders to determine upfront whether people can afford to repay their loans. These strong, common-sense protections cover loans that require consumers to repay all or most of the debt at once, including payday loans, auto title loans, deposit advance products, and longer-term loans with balloon payments.”


2018-09-21T10:18:59+00:00 September 21st, 2018|Categories: CFPB, News, Payday, Regulation|Tags: , , , , |Comments Off on The BCFP/CFPB and Installment Lending