Public Comment Regarding CFPB’s Proposed Rulemaking on Payday, Vehicle Title, and Certain High‐​Cost Installment Loans

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We are grateful for the opportunity to comment on the Consumer Financial Protection Bureau’s (Bureau) Notice of Proposed Rulemaking (NPRM) on “Payday, Vehicle Title, and Certain High-Cost Installment Loans.” We thank Director Kraninger and the Bureau for their thoughtful leadership in reevaluating the Payday Rule announced in November 2017 (2017 Rule or Rule).

In November 2017, the CFPB published its Final Rule on “Payday, Vehicle Title, and Certain High-Cost Installment Loans.” The Rule covered loans with terms of 45 days or less, longer-term balloon-payment loans, and longer-term loans with an annual interest rate in excess of 36 percent and that authorize lenders to withdraw payments from the borrower’s account.

The Rule consisted of two sets of provisions: Mandatory Underwriting Provisions and Payment Provisions. The Rule’s Mandatory Underwriting Provisions, which the Bureau has proposed to rescind in the NPRM, require lenders to assess borrowers’ ability-to-repay (ATR), including income and expense verification, before making a covered loan. The Payment Provisions, which the Bureau has not proposed to rescind, ban lenders from initiating a payment withdrawal from a borrower’s account after the second unsuccessful attempt due to insufficient funds.

The Bureau is right to rescind the Mandatory Underwriting Provisions of the Payday Rule. As the NPRM accurately summarizes, “the evidence underlying the identification of the unfair and abusive practice in the Mandatory Underwriting Provisions of the 2017 Rule is not sufficiently robust and reliable to support” the core provisions of the Rule. Contrary to the statements made in the 2017 Rule, the Bureau did not demonstrate a market failure in the market for short-term loans. Nor is there convincing evidence that the Rule’s proposed interventions would improve consumer welfare. Finally, the Bureau’s simulations of how the U.S. short-term lending market would change in response to the Rule may severely underestimate its negative impact on borrowers’ access to loans. As a result, we agree with the Bureau’s proposal in the NPRM to rescind the Mandatory Underwriting Provisions of the 2017 Rule.

Todd Zywicki and Diego Zuluaga

Todd Zywicki is George Mason University Foundation Professor of Law at Antonin Scalia Law School and a senior fellow at the Cato Institute. Diego Zuluaga is a policy analyst at the Cato Institute’s Center for Monetary and Financial Alternatives (CMFA).