Who Will Supervise the Supervisor?
Recently, the CFPB ordered federal supervision for an installment lender and another installment lender agreed to supervision. Federal supervision is unnecessary as traditional installment lenders are supervised in each state in which they do business. It also highlights the random and unclear regulatory environment our members find themselves in at the federal level.
As background, the Dodd-Frank Act gave the CFPB the authority to supervise certain industries right out of the gate and to supervise “larger participants” in other industries. The CFPB has been doing both for years. The Dodd-Frank Act also allows the CFPB to supervise specific companies that it decides “pose risk to consumers.” The CFPB recently began using this authority for the first time, under a new rule, but has never defined what “risk” means.
For one of the installment lenders referenced above, ordering federal supervision and designating the company as “risky” without defining risk ahead of time is akin to pulling over a car for speeding without posting the speed limit.
A bipartisan Congressional letter warned that the new rule can label nonbank “as ‘risky’ even before an examination is completed, despite complying with existing stringent local and federal regulations. This could lead to confusion in the marketplace about specific entities and have unintentional consequences, including deterring potential consumers and further limiting already tenuous credit access to at-risk consumer groups.”
For more than a century in communities large and small across America, traditional installment lenders have helped consumers meet their unique credit needs, including establishing and rebuilding credit. Traditional installment lenders are providing consumers with the credit they need, whether for unexpected expenses, a new washer or dryer, or a family vacation, or to simply access credit outside of traditional bank or credit union financing. Our industry is committed to fair, transparent, and responsible lending practices that promote access to affordable, easy-to-understand credit options.
Given all that, and our ongoing efforts to work with the agency, AFSA calls on the CFPB to respond to the Congressional letter before proceeding with supervision.
February 27th, 2024
