SBA comment letter asks CFPB to reconsider payday rules

SBA comment letterOn October 7, the Small Business Administration’s Office of Advocacy submitted its comment letter on the CFPB’s short-term, small-dollar loan proposal. A copy of the SBA comment letter is available here.

The Office of Advocacy (Advocacy) was established to act as a voice for small businesses in the rulemaking process. In its comment letter, the Advocacy noted that the Small Business Jobs Act of 2010 “requires agencies to give every appropriate consideration to comments provided by Advocacy.” Thus, the CFPB must include, in any explanation or discussion accompanying the final rule’s publication in the Federal Register, a response to Advocacy’s written comments.

The overarching message was that the Bureau has drastically underestimated the effect of its proposed rule on small businesses, communities and consumers. Advocacy observed that the CFPB’s proposed ability-to-repay requirements are turning an uncomplicated product into a complex product. Advocacy also noted that the proposed requirements, which apply to loan that are less than $500, are greater than what is required for other credit products such as credit cards or a home mortgage.

Advocacy ultimately concluded by urging the CFPB to reconsider various aspects of the proposal to develop requirements that will protect consumers “without jeopardizing their access to legitimate credit.” More specific suggestions to the Bureau include the following topics:

Credit Check Requirements

Advocacy encouraged the Bureau to eliminate the credit check requirement, claiming that a credit check appears to be an “unnecessary hurdle” because many consumers who use payday loans do not have a credit history.

Cooling Off Period

Advocacy thanked the Bureau for reducing the cooling off period from 60 days to 30 days as suggested by SERs at the SBREFA panel. Advocacy noted, however, that even with that adjustment, the CFPB projects that there may be a 55-62% reduction in loan volume and a 71-76% decrease in revenue with the 30-day cooling off period. Advocacy recommended that the Bureau reconsider the need for any cooling off period and encouraged the Bureau to further reduce, if not, completely eliminate the cooling off period requirement.

Exception for Emergency Loans

Advocacy echoed the concerns of roundtable participants and SERs at the SBREFA panel by encouraging the Bureau to provide an exception for emergency situations.

Credit Unions

Advocacy noted that the CFPB has not conducted sufficient analysis about the rule’s potential impact on credit unions. Advocacy suggested that the Bureau defer to the National Credit Union Administration’s (NCUA) expertise in the area of monitoring credit unions and exempt small credit unions from the proposed rule.

Small Communities

Advocacy highlighted the rule’s potential detrimental effect on small rural communities and the consumers and recommended that the Bureau take a closer look at the proposed rule’s impact on those communities.

Business Loans

Advocacy mentioned that the line between consumer loans and small business loans may be “ambiguous and blurry.” Advocacy encouraged the Bureau to provide clear guidance on what qualifies as a small business loan. Further, Advocacy also noted that the proposed rule may put a large percentage of payday lenders out of business which will produce a side-effect of eliminating that source of credit for small businesses altogether.

Implementation Date

The CFPB has suggested that the final rule become effective 15 months after it is published in the Federal Register. Advocacy noted that small entities have undergone a number or recent regulatory changes and encouraged the Bureau to extend the effective date for compliance to 24 months for small entities.

The Office of Advocacy’s comment letter follows outreach efforts including three roundtable meetings held in September 2016 and the agency’s participation in the SBREFA panel held in April 2015. The deadline for comments was October 7, 2016. Comments can be viewed here.

Tags: Auto Title Loans, CFPB Rulemaking, Comment Letters, Payday Loans, SBA, SBREFA

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