The Path Forward for Short-Term Lending

The Bureau of Consumer Financial Protection (BCFP) announced earlier this year that it would re-examine its controversial rule on short-term lending. While this announcement signals a potentially more fact-based approach to rulemaking, several developments within the agency, Congress and the courts could also determine the fate of the final rule and Americans’ access to short-term credit.

AT THE BUREAU

The BCFP is in new territory as Acting Director Mick Mulvaney settles in with a reform agenda while President Trump’s nominee for the Bureau’s second permanent director, Office of Management and Budget (OMB) assistant director Kathy Kraninger, awaits confirmation. But the short-term, small-dollar lending rule remains on the agency’s agenda.

  • In January, Acting Director Mulvaney announced that the Bureau would reconsider its short-term lending rule, a complex 1,690-page rule that would strip away access to regulated credit for millions of Americans.
  • In its Spring 2018 rulemaking agenda, the BCFP indicated that it expects to issue a Notice of Proposed Rulemaking to revisit the short-term lending rule by February 2019, initiating a new comment period and opportunity to fairly consider the perspective of all stakeholders.
  • A number of other bold actions—including Acting Director Mulvaney arguing that the Bureau previously overreached its statutory authority—could indicate further reform and a return to the agency’s central mission of serving as an independent, non-partisan government agency that protects and empowers consumers and advances evidence-based rulemaking.
 

What to Watch: Will the BCFP move forward with new proposed rulemaking before the August 2019 effective date of the current small-dollar rule, given a recent acknowledgment in a court filing that it will likely miss its February 2019 target date? Meanwhile, will more banks and credit unions explore offering shorter-term installment loans following guidance from the Office of the Comptroller of the Currency (OCC) and a proposal from the National Credit Union Administration (NCUA)?

IN CONGRESS

Members in both chambers of Congress introduced resolutions to nullify the short-term lending rule under the Congressional Review Act (CRA). While the clock ran out on these CRA efforts, there has been considerable activity related to the Bureau and consumer credit.

  • President Trump recently nominated Kathy Kraninger to be the second permanent director of the BCFP; however, Senate Democrats are expected to make a strong push to block confirmation. Sen. Elizabeth Warren (D-MA) has already put a hold on the nomination pending further information about Kraninger’s work at OMB.
  • In April, Sen. Kirsten Gillibrand (D-NY) introduced legislation to establish retail banking services, including small-dollar lending, at every U.S. Post Office.
  • Mid-term elections could reshape political debates on the financial services regulation and the BCFP, especially if leadership in either chamber is flipped.
 

What to Watch: What is the fate of Kraninger’s nomination – will she get a confirmation hearing and a vote? What happens next on the postal banking idea, particularly after Rep. Patrick McHenry (R-NC) sent a letter to Treasury Secretary Steve Mnuchin arguing that the U.S. Postal Service isn't equipped to handle financial services?

IN THE COURTS

The courts are considering the constitutionality of the Bureau’s structure and authority, as well as next steps on a lawsuit filed by the short-term lending industry to stop the BCFP’s rule.

  • A federal district judge ruled in CFPB v. RD Legal Funding that the structure of the BFCP violates the Constitution, contradicting the D.C. Circuit Court of Appeals’ ruling in CFPB v. PHH. The ruling increases the likelihood that the Supreme Court will need to be the final decision maker.
  • In its latest action, the U.S. District Court judge overseeing the Community Financial Services Association of America’s lawsuit against the BCFP stayed the lawsuit until after the Bureau completes its review of the short-term, small-dollar lending rule. However, the judge did not grant the request to stay the rule’s effective date, which remains August 2019.
 

What to Watch: Will the judge in the short-term lending industry’s lawsuit reverse his decision and agree to stay the BCFP rule’s effective date following appeals by the industry and the Bureau? What happens next in the ongoing debate about the BCFP’s constitutionality?

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