The Consumer Financial Protection Bureau (CFPB)’s 90-day comment period for its new federal payday loan regulatory framework is coming to a close. But this isn’t preventing several state officials from airing their grievances and demanding the federal consumer watchdog agency do more on the issue ahead of the deadline.
In an open letter to the CFPB released on Friday, officials from seven states and the District of Columbia averred that the new rules and regulations pertaining to payday loans don’t go far enough. They believe that the new recommendations could actually encourage high-interest lenders to return to states where they have either been restricted or been completely shut down.
According to the letter, the eight attorneys, which represent the likes of New York and Pennsylvania, are requesting that the CFPB tighten the payday loan market even further.
The state leaders concede that the CFPB does not have the authority to rein in interest rates or establish limits. But they say that without tougher CFPB rules on their side then they themselves wouldn’t be able to make a significant impact on the payday loan industry.
The attorney generals (AGs) are concerned that some unscrupulous players could take advantage of exemptions. This has been one of the primary concerns of various consumer advocacy groups and non-profit organizations. These loopholes, critics say, need to be changed immediately.
Essentially, the CFPB’s new requirements must be the “minimum standard” for other states to ape.
“It is essential to preserve the ability of individual states…to maintain their existing usury caps,” the officials said, adding that these interest rate caps could be “the single most effective way of ending the harms.”
Several states across the country have prohibited payday loans from operating. Other states have imposed caps or other kinds of restrictions on payday loan establishments. It was argued over the summer that the CFPB’s payday loan regulations could negatively impact some states’ efforts to rein in the industry or completely bypass state and local legislation. While all this is happening many lenders have just moved their business online which opens another can of worms.
But is this a matter of speaking too soon? The CFPB has stated that it will look at the comments and include them into their final federal framework. Moreover, CFPB director Richard Cordray has stated that it could very well take up to 15 months in order to adopt a complete payday loan proposal.
To date, more than half a million comments have been submitted to the CFPB. Although the CFPB will not disclose what has been said, you can imagine that it has been split right down the middle. Some will purport that the suggested rules go too far, while others will argue that they don’t go far enough.
Payday loan opponents often make the case that these short-term, high-interest loans send millions of consumers into debt, and it becomes nearly impossible to get out of the debt trap. Those on the other side contend that payday loans provide the most vulnerable access to credit, which is something they cannot have from conventional financial institutions.