Democrats grill CFPB official on payday rewrite

A senior official at the Consumer Financial Protection Bureau told lawmakers on Thursday that the bureau’s reliance on a limited study of payday lenders was not strong enough to support strict underwriting requirements of small-dollar loans.

Thomas Pahl, the CFPB’s policy associate director for research, markets and regulations, defended the agency’s overhaul of its 2017 payday rule, announced earlier this year, by claiming the study the CFPB relied upon to impose tough ability-to-repay standards did not address vehicle title loans and was limited to data collected from one payday lender in five states.

“We did not do any new research,” Pahl told the House Financial Services subcommittee on economic and consumer policy. “We have decided to reconsider the rule, in part, because the research that was done — [there was] nothing wrong with it in and of itself — is not a very strong basis for addressing all vehicle title lenders nationwide and all payday lenders nationwide and for that reason we have questions about it, and that’s why we put it out for public comment to see if there are other sources of information on this point before the bureau makes a final determination.”

The study by Columbia University law professor Ronald Mann was cited over 30 times by the CFPB in its 2017 rule and formed the basis for the agency’s finding that repeated rollovers of payday loans were both unfair and abusive.

Pahl said CFPB economists used Mann’s data, which found that at least 40% of consumers do not adequately understand the risks of payday loans, to support the bureau’s tough restrictions in its 2017 rulemaking.

Mann’s study was controversial from the get-go. The study has been repeatedly cited by payday lenders and trade groups that sued the bureau in Texas last year as the basis for repealing the payday rule.

In February, the Trump-appointed CFPB director, Kathy Kraninger, proposed eliminating underwriting requirements in the rule and issued a separate rulemaking to change the rule’s compliance date. Payday and auto title lenders would benefit from the CFPB’s latest payday proposal, which is estimated to bring in an additional $8 billion in revenue a year to the $15 billion industry, Rep. Ayanna Pressley, D-Ill., said at Thursday's hearing.

In March, a federal judge gave payday lenders a reprieve from the payment provisions of the rule by leaving a stay of the Aug. 19 compliance date of the rule in place.

The 2017 payday rule, drafted under former CFPB Director Richard Cordray, had two key components: underwriting requirements for high-cost, small-dollar loans, and limits on how often a lender can attempt to debit payments from a borrower’s bank account.

Rep. Raja Krishnamoorthi, D-Ill., who chairs the House oversight subcommittee, questioned Pahl on the CFPB’s contacts with payday lenders. The CFPB did not discuss Kraninger’s payday proposal with the industry, Pahl said, and he agreed to provide the committee with details of all meeting with payday lenders.

Pressley asked Pahl why the CFPB stated in its latest proposal that “a more robust and evidentiary record” was needed to support a rule that would have a dramatic impact on “the viability” of payday lenders.

“Other than the industry just not liking [the rule], by what measure are five years of research leading up to the rule not robust or reliable?" Pressley asked.

Pahl responded that the evidence on some specific points “was weak enough to justify going out and seeking public comment on that issue.”

Rep. Gerry Connolly, D-Va., asked Pahl how important independent research is to the CFPB’s rulemaking and cited several news articles that found lobbyists were willing to pay researchers for academic studies favorable to the industry.

Pahl admitted that it was “troubling” for academics to submit research that may not be factually accurate, but he said the CFPB does not throw out the research but rather looks at the underlying data.

“Our reconsideration proposal does not in any way rely on that research,” Pahl said.