Morgan Lewis Principal on the Payday Loan Debate

The Consumer Financial Protection Bureau (CFPB) said earlier in the month that it would seek to revise a number of payday lending regulations that were put in place in 2017 and were due to go into effect in August of this year.

Among the regulations scheduled for review is one known as “repayment capacity”, which would require short-term lenders to ensure that a borrower can repay low-cost short-term loans. amount before extending them to consumers. This would involve checking a borrower’s income, debt, and spending habits. Alternatively, the lender could choose to bypass this verification process and change the loan to an installment offer, with a deadline and payment schedule agreed upon at the time of loan granting.

As it was reported, the Bureau, recently renewed under Kathy kraninger, said the “repayment capacity” provision should be removed from the series of provisions expected to come into force this year. The agency said maintaining the requirement would negatively impact consumers’ access to credit and hurt competition in markets – and, the CFPB added, there is “insufficient evidence and legal support. For this provision.

Other provisions that are expected to come true (now in 2020) are still in place, including one that prohibits lenders from repeatedly attempting to withdraw payments from accounts after being declined only once.

A comment period remains in effect, and over the next few weeks all kinds of views are likely to be released.

In an interview with PYMNTS conducted during a written exchange, Nicholas Gess, director of Morgan Lewis Consulting, said the CFPBThe decision to rescind the “repayment capacity” provision is “hardly surprising” as the Trump administration made regulatory retreat a campaign issue in 2016. He added that “at a level More granularly, the CFPB has moved from examining the direct impact on consumers of the lending practice in question to a broader balancing effort in which consumer access to credit is also considered.

Gess, who serves as director of strategic litigation, risk avoidance and communications for Morgan Lewis Consulting, told PYMNTS that the rule, as drafted, would likely have increased the costs of granting claims. new loans and possibly “make them uneconomically viable”, while new proposals could look at loans through a “broader lens” which can in turn judge whether the loan products themselves are desirable.

With reference to the payday loan Landscape in general, Gess said the CFPB did not have the authority to ban the payday loan product, and “it just stopped and just made the product unsustainable.” As long as there is consumer demand for the product, there will be competition for it, and the top lenders may well be those with the capital and foresight to take advantage of new technologies. . It’s not much different from any other financial services product: innovation will be a competitive advantage.

But, as PYMNTS noted, the process from commentary to final rule-making hardly goes in a straight line, and Gess noted that there would likely be congressional oversight hearings, especially at the Chamber, as well as legal challenges.

“This may be an electoral problem, given that the proposal pushes the date back to November 20, 2020, just days after the next election of the president, the entire House of Representatives and a third of the Senate.” He added that as the debate becomes political, “it will be difficult to separate the proposals, which are broadly acceptable, as the underlying issue is a debate over whether payday loan should exist at all … politics will probably drown substance. I do not expect major stakeholders to agree on this issue.

Sloan to go it alone

Separately, the news arrived this week that the CEO of financial giant Wells Fargo, Timothy Sloan, could appear, alone, next month before the House Financial Services Committee.

The Wall Street Journal said the goal would be for the panel to “review” the bank’s recent abuse scandals. The appearance would take place on March 12, preceding an April hearing where Sloan would be joined by the CEOs of JPMorgan Chase, Goldman Sachs, Morgan Stanley, Citigroup and Bank of America.



On: Eighty percent of consumers want to use non-traditional payment options like self-service, but only 35 percent were able to use them for their most recent purchases. Today’s Self-Service Shopping Journey, a PYMNTS and Toshiba Collaboration, analyzes more than 2,500 responses to find out how merchants can address availability and perception issues to meet demand for self-service kiosks.

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