Consumer Finance

CFPB Payday Loan Limits Drawing Quieter Response Compared to Its Arbitration Rule

Republican leaders giving mixed signals on whether they will block the small-dollar lending regulation

Senate Banking Committee Chairman Mike Crapo (R-Idaho), left, with Sen. Sherrod Brown (D-Ohio) in March 2017. Crapo said Thursday that he did not want to "give odds" on whether a Congressional Review Act resolution to block a rule on small-dollar loans is likely. (Chip Somodevilla/Getty Images)

Over three weeks have passed since the Consumer Financial Protection Bureau finalized a rule that places new limits on small-dollar lending, but leading GOP lawmakers are giving mixed signals about whether members of Congress will aid the financial companies that oppose the regulation — unlike the months-long battle they waged to block a separate CFPB provision on mandatory arbitration clauses.

Despite a flurry of skepticism from lawmakers and financial firms about the small-dollar lending rule while it was pending, the final version, released on Oct. 5, was met with a divided response from the financial services industry. In general, big banks stopped short of criticizing the rule after the CFPB decided to ease restrictions on small lenders such as credit unions, while the Consumer Bankers Association and the payday lending industry cried foul.

By comparison, groups representing the financial services industry were quick, and unified, in condemning the CFPB rule, when it was finalized on July 10, that hindered financial firms’ ability to require arbitration to settle legal disputes brought by consumers. Within 10 days, members of Congress had announced plans to introduce Congressional Review Act resolutions to block the regulation. They succeeded on Oct. 24 after Vice President Mike Pence broke a tie in the Senate to halt the rule.

The payday rule still hasn’t been published in the Federal Register, which is a prerequisite for it entering into force, but a CFPB spokesman said it’s been submitted for publication. Once the rule is officially transmitted to Congress, a lawmaker has 60 calendar days, not counting recess periods, to introduce a CRA resolution, according to the Congressional Research Service.

Jeff Emerson, a spokesman for the House Financial Services Committee, said that committee Chairman Jeb Hensarling (R-Texas) wants a CRA resolution to move forward, but that “nothing has been planned yet” on the payday rule. When asked why there hasn’t been any immediate action regarding a CRA, Emerson pointed to the pending Federal Register publication.

Senate Banking Committee Chairman Mike Crapo (R-Idaho) told reporters Thursday that he did not want to “give odds” on whether a CRA resolution is likely in the Senate.

“I know that there’s a lot of consideration and discussion of it, but I’m just waiting to see what that discussion generates,” Crapo said.

When asked if the tight margin of the arbitration CRA vote would change Republicans’ calculus on blocking the payday rule, Crapo said, “We’ve always known that all of these are going to be close.”

Crapo’s office didn’t immediately return a request for comment on why lawmakers have been relatively slower to act.

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Even if a CRA resolution is not successful in overturning the rule the industry will at some point also be pursuing litigation to overturn the rule.

Despite the slow response, both critics and proponents of the rule are expecting a CRA resolution. Ed D’Alessio, the executive director of Financial Service Centers of America, which represents the small-dollar lending industry, said by email Thursday that he thinks there’s an appetite in Congress for a payday rule CRA, partly because of the success of the arbitration resolution.

If a resolution does not move forward, however, the lending industry always has the option of trying to block the rule through litigation.

“Even if a CRA resolution is not successful in overturning the rule, the industry will at some point also be pursuing litigation to overturn the rule and will also continue to pursue any other relief possible to prevent it from going into effect,” D’Alessio said.

Gynnie Robnett, a campaign director at Americans for Financial Reform, which supports more regulation of the financial services industry, said by phone Thursday that the small-dollar lending industry has “everything at stake” and will likely continue to push for a resolution.

“But I think the circumstances of that fight are much different than the arbitration fight, and I think we are in a good place to have that fight,” Robnett said. She cited the lack of unity in the financial services industry’s stance and the political criticism of the payday loan industry as predatory lenders.

Outside of the small-dollar loan sector, major industry groups that criticized the arbitration rule have kept relatively quiet on the payday loan rule. Jeff Sigmund, a spokesman for the Washington-based American Bankers Association, said by email that the organization is continuing “to engage with our members to determine whether the final rule provides banks with adequate opportunity to offer the small-dollar credit their customers need.”

ABA represents large banks but also smaller institutions, which were essentially exempted from the final version of the CFPB’s rule. Credit unions, another class of institution that the CFPB opted not to subject to the payday loan rule, have said little about the regulation.

Ryan Donovan, the chief advocacy officer for the Washington-based Credit Union National Association, said by phone Thursday that the payday rule differs from arbitration because the CFPB tried to “leave consumer-friendly, short-term small-dollar lending options available, just like the ones that credit unions offer.”