WASHINGTON — Attorneys general from 24 states and Washington, D.C., are opposing the Consumer Financial Protection Bureau’s proposal to remove ability-to-repay requirements from the agency’s payday lending rule.
In a comment letter Wednesday, the attorneys general, led by Washington, D.C., AG Karl Racine, said the bureau’s proposal is inconsistent with the Dodd-Frank Act, ignores states’ experience with payday and vehicle title lending, and undermines states’ efforts to protect consumers.
“The bureau’s proposal to jettison significant consumer protections adopted just 18 months ago is deeply flawed as a matter of law and policy,” the attorneys general wrote. “The proposal rests on the bureau’s embrace of several new and unjustified limits on its authority to identify acts and practices as unfair and abusive. These new limits are unduly restrictive and inconsistent with applicable law.”
The CFPB in February proposed to rescind a requirement for lenders to assess borrowers’ ability to repay, which was seen as a centerpiece of the payday lending rule viewed by supporters as a protection against spiraling consumer debt.
The attorneys general say that the proposal is inconsistent with the CFPB’s authority to protect consumers from unfair, deceptive and abusive acts or practices, because the agency determined in 2017 that it was an “unfair and abusive practice” for a lender to make short-term loans without reasonably determining that consumers have the ability to repay the loans.
They also argued that the agency’s conclusions that led to the proposal “ignore the experiences of numerous states that have implemented restrictions on payday and vehicle title lending.” Seventeen states and the District of Columbia have either prohibited payday lending or have imposed structural limits and restrictions on consumers’ ability to take out multiple loans or roll over credit. More than 35 jurisdiction also maintain a 36% rate cap for small-dollar installment loans by nonbank lenders.
“Contrary to the bureau’s conclusions, these restrictions on payday and vehicle title lending have benefited consumers and expanded access to manageable credit,” the attorneys general wrote. “These rate caps help prevent unaffordable loans that trap consumers in a cycle of debt.”
They added that the CFPB has “overlooked studies” that have found states that have eliminated payday lending save borrowers $5 billion annually.
The attorneys general said that the proposal would also undermine states’ ability to enforce their own laws. They said the 2017 rule granted them an additional enforcement mechanism for preventing illegal lending, and that maintaining a federal floor on lending activities is “crucial” to supporting state oversight.
“By removing the 2017 rule’s federal regulatory floor, the bureau will enable lenders to continue trying to avoid state regulation and continue marketing expensive and often unlawful products to consumers without providing borrowers an opportunity for negotiation or comparison,” the attorneys general wrote.
