Michigan Lending Facts is keeping a close eye on the Consumer Financial Protection Bureau (CFPB) – a U.S. government agency that makes sure banks, lenders and other financial companies treat consumers fairly. We will provide regular updates on the significant CFPB’s activities that impact the State of Michigan.
Recently, the CFPB made notice of their intent to revisit the Nov. 17, 2017 Final Small Dollar Loan Rule. While the intent of the rule is well-intentioned, more than 800,000 comments in opposition revealed serious flaws in certain aspects of the rule.
On Feb. 6, 2019, the CFPB proposed two rules to amend the 2017 Final Rule and address the areas of concern. After all, according to the CFPB’s own estimates, industry revenue would have been reduced by 70%! Such a drastic cut would devastate the state’s regulated industry.
The two proposed rules would
- Rescind the government mandate on underwriting provisions:
- The mandate results in job loss, not job gain, forces state-regulated lenders out of business, and does nothing to address consumer demand.
- The mandate is a reminder that when governments restrict regulated markets too much, the unregulated supply fills the void.
- Given Michigan has 4 to 5 million adults who lack emergency liquid cash, who will supply their demand? If not regulated lenders, then who?
- Defer the compliance date of underwriting provisions mandate by 15 months, making the new compliance date November 19, 2020.
- This affords industry and regulators time to develop a workable solutions that:
- Preserves jobs
- Benefits the consumer
- And is manageable to regulate
- Allows the industry to implement the changes, train their employees, and better serve consumers.
- This affords industry and regulators time to develop a workable solutions that:
As for the remainder of the rule, those provisions and consumer protections remain intact and on schedule for an August 19, 2019 compliance date. The protections include:
- A mandate to assess the ability to repay the loan. These ability to repay provisions require the lender to determine that the customer has the ability to repay the loan and meet major financial obligations and basic living expenses during the term of the loan, including the 30-days following the due date.
- A requirement that a lender must give the consumer at least three business days’ notice before attempting to obtain payment by accessing a consumer’s checking, savings, or prepaid account.
- Sets limitations on attempts by the lender to recover money owed through electronic means.
Government oversight and regulatory reform are important aspects to creating a fair and responsible framework that balances the needs of the industry & their employees with protections for consumers.
There are clearly aspects of the rule that go too far and hurt the very people the rule seeks to protect.