CBA, AFSA, ABA Joint Comment Letter Re: Proposed CFPB Small-Dollar Rule

By Electronic Filing October 6, 2016

Monica Jackson
Office of the Executive Secretary Consumer Financial Protection Bureau 1700 G Street NW
Washington, DC 20552

Re: Proposed Rule: Payday, Vehicle Title, and Certain High-Cost Installment Loans (No. CFPB-2016-0025)

Dear Ms. Jackson:

This letter provides comments from trade associations representing a broad cross-section of the United States financial services industry on the Consumer Financial Protection Bureau’s proposed rule, “Payday, Vehicle Title, and Certain High-Cost Installment Loans,” 81 Fed. Reg. 47,864 (July 22, 2016) (“Proposed Rule”). Specifically, the American Bankers Association (“ABA”), American Financial Services Association (“AFSA”), and Consumer Bankers Association (“CBA”)—collectively, the “Trade Associations”—are concerned that the Proposed Rule exceeds the Bureau’s statutory authority, is unsupported by adequate evidence, does not undertake a sufficient cost-benefit analysis, fails to consider less intrusive alternatives, and is arbitrary and capricious in other respects. We urge the Bureau to remedy these problems when it finalizes the Proposed Rule.

I. The Proposed Rule Exceeds the Bureau’s Statutory Authority.

Federal agencies are creatures of statute and may exercise only those powers delegated to them by statute. See, e.g., La. Pub. Serv. Comm’n v. FCC, 476 U.S. 355, 374 (1986) (“[A]n agency literally has no power to act ... unless and until Congress confers power upon it.”); FTC v. Dean Foods Co., 384 U.S. 597, 605 (1966); see also W. Minnesota Mun. Power Agency v. FERC, 806 F.3d 588, 593 (D.C. Cir. 2015). The Proposed Rule violates that principle—and therefore violates the Administrative Procedure Act—because it fails to observe the limitations Congress placed on the Bureau’s authority.

A. The Proposed Rule Imposes An Unlawful Usury Limit.

Section 1027(o) of the Dodd-Frank Act provides that the Bureau may not “establish a usury limit applicable to an extension of credit offered or made by a covered person to a consumer, unless authorized by law.” 12 U.S.C. § 5517(o). No statute authorizes the Bureau to impose usury limits on traditional installment loans (“TILs”) or lines of credit (“LOCs”) (collectively, “Traditional Loan Products”). Thus, the Bureau lacks legal authority to impose a usury limit on Traditional Loan Products.

The Proposed Rule exceeds the Bureau’s statutory authority by imposing just such a usury limit. In particular, the Proposed Rule imposes substantial and burdensome underwriting requirements on covered long-term loans with a “total cost of credit that exceeds 36 percent.” 81 Fed. Reg. at 47,904. Because these additional underwriting requirements are so costly, many lenders will not make such loans and charge such interest rates. It is irrelevant that the Proposed Rule does not categorically prohibit covered loans with a total cost of credit in excess of 36 percent. The Proposed Rule imposes a de facto usury limit by making it uneconomical for many lenders to comply with the new underwriting requirements....(Continue Reading)