Federal Small Business Authority Sharply Questions CFPB'S Proposed Payday Rule

In strongly worded comments filed October 7 in the Consumer Financial Protection Board's (CFPB) rulemaking on payday and other small dollar loans, the federal agency charged with advocating on behalf of small business took sharp issue with the CFPB's proposed rule, saying it would likely harm both small businesses and the consumers it sought to protect. Detailing a number of problematic requirements in the proposal as well as numerous provisions that lacked proper economic analysis, the Small Business Administration's (SBA) Office of Advocacy (Advocacy) urged the CFPB to look carefully at the proposal's adverse impacts on small businesses, communities, and consumers and reconsider its approach. In particular, Advocacy pressed the CFPB — "if [it] believes it is necessary to go forward at this juncture" — to "develop requirements that protect the consumers without jeopardizing their access to legitimate credit." 

Advocacy's comments, which were unusually pointed, noted repeated calls for the CFPB to acknowledge and analyze existing state regulation of small dollar loan products and the effectiveness of those measures. Additional concerns included the CFPB's understatement of many costs of the proposed rule and its detrimental impacts on small lenders, businesses, and communities, particularly rural communities where consumers have limited credit options. Pointing out that the proposal would establish greater requirements for a $500 loan than for a home mortgage, Advocacy warned that "imposing these strict regulations may deprive consumers of a means of addressing their financial situation."

The Office of Advocacy is an independent office within the SBA, with a Presidentially appointed, Senate confirmed Chief Counsel. The CFPB is required to respond to Office of Advocacy comments, which are part of the formal administrative record for the rule, reviewable by the courts if the final rule is challenged. Clark Hill member Jane Luxton advised clients on small business legal issues in the rulemaking, and can be contacted for more information at 202 572 8674. 

Clark Hill's Consumer Financial Services Regulatory & Compliance Practice Group is a national leader in the field of consumer financial services law, providing strategic legal counsel to clients in all areas of consumer finance. We provide counsel, consultation and litigation services to financial institutions, law firms and debt buyers throughout the country. Our group can help you navigate this rapidly evolving regulatory environment. Our exceptional team of lawyers and government and regulatory advisors has extensive experience in – and an in-depth understanding of – the laws and regulations governing consumer financial products and services. We can assist you in developing and implementing compliance programs, as well as defending consumer litigation and regulatory enforcement actions.