Regulator of national banks showers praise on proposed payday lending rule changes: ‘important, courageous’ step

Count the regulator of national banks as a fan of the consumer financial protection agency’s proposed revisions to its rules covering small-dollar “payday” lending, according to a release issued Monday.

Comptroller of the Currency Joseph Otting, in the release, called the proposal made last week by the Consumer Financial Protection Bureau (CFPB) to rescind earlier rules issued by the consumer agency an “important and courageous” step.

The revisions, Otting said, “will allow banks and other responsible lenders to again help consumers meet their short-term small-dollar needs.” He added that the proposal would allow lenders to re-enter the market with “quality products and services that offer consumers better regulated, priced, and structured products.”

On Wednesday, the CFPB released a proposal (for a 90-day comment period) to eliminate the ability-to-repay provisions of the consumer bureau’s payday lending rule and delay the implementation of those measures by 15 months – to Nov. 19, 2020. The proposal would rescind the rule’s requirements that lenders make certain underwriting determinations before issuing payday, single-payment vehicle title, and longer-term balloon payment loans. Also, the bureau “is preliminarily finding that rescinding this requirement would increase consumer access to credit,” the agency said in a release.

Otting said, in his statement, that the proposal would allow “responsible lenders to compete,” which would (in turn) allow the market to work better for everyone.

“When banks offer products with reasonable pricing and repayment terms, consumers benefit from other services that banks regularly provide, such as financial education and credit reporting,” Otting said. “Banks may not be able to serve all of this large market, but they can reach a significant portion of it and bring additional options and more competition to the marketplace while delivering safe, fair, and affordable products that promote the long-term financial goals of their customers.”

In October 2017, following the release of the original payday lending rules by the CFPB, the OCC rescinded guidance to national banks issued nearly six years ago about “Deposit Advance Products” – including payday and other small-dollar, short-term loans.

“The final rule regarding short-term, small-dollar loans submitted to the Federal Register by the Consumer Financial Protection Bureau necessitates revisiting the OCC guidance,” said Acting Comptroller Keith Noreika in a statement in 2017. “The OCC may consider issuing new guidance in the future,” he added.

The continuation of the OCC’s guidance, Noreika added, would subject national banks and federal savings associations to “potentially inconsistent regulatory direction” and “undue burden as they prepare to implement the requirements of the CFPB’s final rule.”

Last May, however, the OCC issued a bulletin encouraging banks and savings institutions to provide consumers short-term, small-dollar installment loans. The bulletin also offered principles and policies to help banks avoid running afoul of the CFPB’s current federal payday lending rule, action that drew praise from the then-acting director of the CFPB, John (“Mick”) Muvaney.

Comptroller of the Currency Supports CFPB Proposed Rule on Short-Term Small-Dollar Lending