On the final day for public comment, the Obama administration’s top small-business advocate is calling on the Consumer Financial Protection Bureau (CFPB) to reconsider its proposed regulation of the payday lending industry.
The U.S. Small Business Administration’s Office of Advocacy on Friday filed formal comments with the CFPB, saying the agency had “underestimated the potential impact of this rulemaking on small entities.”
Darryl DePriest, chief counsel in the SBA’s Office of Advocacy, urged the CFPB to instead develop requirements to protect consumers “without jeopardizing their access to legitimate credit in states that do not currently regulate payday lending.”
In unveiling its proposal in June, the CFPB cited its serious concerns that risky lender practices were “pushing borrowers into debt traps.” That’s because within a month, almost 70 percent of payday loan borrowers take out a second loan, and one in five new borrowers ends up taking out at least 10 or more loans, paying more fees and interest on the same debt.
The agency’s proposed rules would not prohibit all payday, auto title or other high-costs loans, but they would require lenders to adopt stricter standards to determine if consumers have the ability to repay.
That requirement would make it difficult, if not impossible, for many payday lenders to remain in business, the SBA said.
Conversely, New York Attorney General Eric Schneiderman was joined by his counterparts in seven other states in applauding the CFPB for looking to regulate an industry that they said “has a widespread impact on the lives of millions of financially vulnerable consumers across the nation.”
The support for the proposed regulation came from states that already have strong usury caps that effectively ban payday lending: Connecticut, Maryland, Massachusetts, New Hampshire, Pennsylvania, Vermont and the District of Columbia.
The payday lending industry has said it would challenge the consumer agency’s proposal if it’s adopted, something that isn’t expected to happen until next year.