American Financial Services Association

AFSA urges changes to CFPB’s proposed small dollar rule

Blog Posts

AFSA urges changes to CFPB’s proposed small dollar rule

WASHINGTON, D.C., October 7, 2016 – The American Financial Services Association (AFSA) has submitted its 37-page comment letter to the Consumer Financial Protection Bureau (CFPB) urging the federal regulator to preserve consumers’ access to safe and affordable traditional installment lending (TIL) by modifying the Proposed Rule on payday, title loans and certain high-cost installment loans.

AFSA’s comprehensive letter, which examined in detail the CFPB’s 1,300-page proposed rule and the potential harm it would bring to the 100-year-old traditional installment industry and its customers, was among the nearly 500,000 comment letters received by the CFPB.

“The breadth of the Proposed Rule exceeds the CFPB’s statutory authority and the over-inclusive nature of the Proposed Rule is arbitrary and capricious,” said Chris Stinebert, President and CEO of AFSA. “The Proposed Rule should be limited to payday, title, and high-cost installment loans and exclude traditional installment lending.”

AFSA’s letter pointed out that traditional installment loans, which have been around for a hundred years, should be exempted from the proposed rule. If they are not exempted, “…consumers will turn to unlicensed and unregulated online lenders, trapping them in hopeless financial quagmires.”

If the CFPB chooses not to exempt AFSA members in the traditional installment loan industry, AFSA illustrates specific changes for the CFPB to consider to the Proposed Rule including:

  • revising the definition of total cost of credit,
  • eliminating voluntary leveraged payment mechanisms as a trigger for coverage,
  • modifying the ability-to-repay requirements to allow lenders more flexibility,
  • modifying the restrictions on refinancing,
  • revising the payment procedures,
  • eliminating the mandatory credit reporting requirement,
  • and extending the effective dates.

While AFSA shares the CFPB’s concern that certain bad actors in the payday and title pawn industries can lead their customers into a “cycle-of-debt,” the trade association pointed out numerous times in its letter that AFSA member companies in the traditional installment loan industry provide safe and affordable loans that are fully amortized in affordable monthly payments that are based on a customer’s ability to repay and therefore, should not be covered under the proposed rule.

The proposed rule was unveiled on June 2 at a public hearing in Kansas City. The deadline for submitting a comment letter to the CFPB is today.

October 7th, 2016 by