ALTERNATIVE FINANCIAL SERVICE PROVIDERS ASSOCIATION

After win on U.S. class actions, finance firms aim to kill payday loan rules

WASHINGTON (Reuters) - After the U.S. Congress killed a rule allowing customers to band together to sue financial firms over disputes, the door may open for a similar attempt to push back a new rule curbing payday lenders, said lawyers and lobbyists on Wednesday.

The Senate on Tuesday killed a rule banning banks, credit card issuers and other financial companies from using "forced arbitration" clauses in account contracts, the most significant roll-back of Obama-era financial policy since President Donald Trump took office.

The decision, passed by a narrow majority of 51 to 50, could set the stage for further attacks on rules enacted by the Consumer Financial Protection Bureau, a regulator created after the financial crisis of 2007-09. Consumer advocates say it plays a critical role in protecting Americans against financial abuse.

New restrictions on payday lenders - also known as "small-dollar" lending - are seen as the potential next target.

"I think payday lending is the next big fight," said Gynnie Robnett, campaign director for Americans for Financial Reform. "The payday lending industry, they are tenacious. This will be a fight and a long fight, for sure. "

Republicans killed the arbitration rule using a legal mechanism known as the Congressional Review Act (CRA) that allows Congress to repeal new federal regulations issued by government agencies. Read more at REUTERS

Why Congress Should Block the CFPB Payday Loan Rule. by Daniel Press

Republicans have been looking for a political win for a while. They finally got one this week by overturning the Consumer Financial Protection Bureau's (CFPB) disastrous arbitration rule, which sought to bar financial companies from using private arbitration over class-action lawsuits-despite the fact that the CFPB's own study confirmed that private arbitration is better for consumers.

Now they should turn their attention to the small dollar, short-term lending rule issued by the CFPB earlier this month. It is every bit as devastating as the arbitration rule. Congress should block the new rule via a Congressional Review Act resolution of disapproval. Below are just some of the reasons to fight the rule.

The Rule Will Hit the Poor the Hardest

The small dollar loan rule targets short-term payday and vehicle title loans, as well as certain longer-term, high-cost installment loans (such as those including balloon payments).

The rule requires lenders to ensure that a consumer can pay back the loan and still cover financial obligations and living expenses for 30 days by mandating that a lender assess a borrower's "ability to repay." But this standard makes no sense. If borrowers had an immediate "ability to repay," they wouldn't patronize payday lenders in the first place, and instead use their own savings or credit cards.

The CFPB's own analysis found that the rule will kill off around three-quarters of the industry. Twelve million Americans use payday loans annually, with 20,000 storefronts across the country. Destroying 75 percent of the industry will eliminate around $11 billion of consumer credit, leaving millions without access to emergency financing they occasionally need to get by from paycheck to paycheck.

Typical users of these small dollar loans are low- to middle-income individuals with few liquid assets, maxed-out credit cards, and exhausted savings accounts. For these people, short-term loans are a better option than defaulting on a loan, being hit with an overdraft fee, or even worse, having to acquire credit from illegal and predatory loan sharks.

In fact, surveys have found that 95 percent of borrowers say they value having the option to take out a payday loan, while the same proportion also believe they provide a safety net during unexpected financial trouble. Taking away this essential source of emergency funding is not "consumer protection." It's government paternalism. Read more at CEI.ORG

Is arbitration win a turning point for banks?

The Senate's razor slim vote to repeal the Consumer Financial Protection Bureau's arbitration rule was arguably the industry's biggest policymaking victory since passage of the Dodd-Frank Act. But does it mean the regulatory tide has turned in banks' favor? Many are skeptical.

"It's a very big win for banks, and a huge victory that [the Senate] finally did it, but I don't think the implications of it are all that broad," said Alan Kaplinsky, the co-practice leader at Ballard Spahr's consumer financial services group. "This was an unusual situation where there was almost universal support for an override, and look how difficult it was; they eked by."

The 51-to-50 vote, which required Vice President Mike Pence to break a tie, overturned a rule abhorred by banks that would have have prohibited arbitration clauses that preclude consumers from bringing class actions. The repeal was authorized by the Congressional Review Act, which allows lawmakers to reverse agency rules with a simple majority.

Despite the close margin, the measure was an unambiguous win for banks. It not only invalidated the CFPB regulation, but the bureau cannot bring back the regulation in the future without congressional approval, which requires 60 votes in the Senate.

To be sure, banks have notched policy successes since Dodd-Frank. For example, as part of a 2014 spending bill, lawmakers repealed a Dodd-Frank provision requiring banking firms to push out a portion of their swaps business into subsidiaries. Yet that measure was seen as benefiting large banks, particularly Citigroup, whereas the arbitration rule repeal has wider appeal.

Read more at NATIONAL MORTGAGE NEWS

TEXAS: AG Paxton Files Amicus Brief Challenging the Constitutionality of the Consumer Financial Protection Bureau

Leading a coalition of 12 states, Attorney General Ken Paxton today filed a friend-of-the-court brief with the U.S. District Court for the Northern District of Texas challenging the constitutionality of the Consumer Financial Protection Bureau (CFPB) and its Arbitration Rule. The U.S. Chamber of Commerce, along with several Texas-based business organizations, sued the CFPB to block the rule from taking effect.

"The CFPB may be the most powerful, least accountable agency in American history, and because it was unlawfully constituted, it has no rule-making authority," Attorney General Paxton said. "One federal court already has recognized that the CFPB's unelected director enjoys more unilateral authority than anyone else in the U.S. government, other than the president. The Constitution does not permit an executive agency to aggregate that much unchecked power in a single person."

The CFPB's Arbitration Rule would prohibit consumers and providers of financial products and services from agreeing to resolve future disputes through arbitration, even though arbitration gives consumers the ability to bring claims that they could not realistically assert in court.

In July, the U.S. House voted to overturn the Arbitration Rule, and the U.S. Senate on Tuesday voted to do the same. The measure is now awaiting President Trump's signature.

"We hope the president will soon take action to do away with the Arbitration Rule, which is bad for business and hurts consumers by giving them fewer options for quickly and efficiently resolving financial disputes," Attorney General Paxton said. "The CFPB itself is unconstitutional, unanswerable to anyone, and should be done away with." 

Read more at TEXAS ATTY GENERAL

CFPB Payday Loan Limits Drawing Quieter Response Compared to Its Arbitration Rule

Republican leaders giving mixed signals on whether they will block the small-dollar lending regulation

Over three weeks have passed since the Consumer Financial Protection Bureau finalized a rule that places new limits on small-dollar lending, but leading GOP lawmakers are giving mixed signals about whether members of Congress will aid the financial companies that oppose the regulation - unlike the months-long battle they waged to block a separate CFPB provision on mandatory arbitration clauses.

Despite a flurry of skepticism from lawmakers and financial firms about the small-dollar lending rule while it was pending, the final version, released on Oct. 5, was met with a divided response from the financial services industry. In general, big banks stopped short of criticizing the rule after the CFPB decided to ease restrictions on small lenders such as credit unions, while the Consumer Bankers Association and the payday lending industry cried foul.

By comparison, groups representing the financial services industry were quick, and unified, in condemning the CFPB rule, when it was finalized on July 10, that hindered financial firms' ability to require arbitration to settle legal disputes brought by consumers. Within 10 days, members of Congress had announced plans to introduce Congressional Review Act resolutions to block the regulation. They succeeded on Oct. 24 after Vice President Mike Pence broke a tie in the Senate to halt the rule. Read more at MORNING CONSULT

Financial industry scores big win over CFPB - for now

On Tuesday, the financial-services industry scored a huge victory over the trial lawyers and consumer advocates when the Senate narrowly passed legislation, previously passed by the House, to kill the Arbitration Agreements Rule formulated by the Consumer Financial Protection Bureau (CFPB).

This rule would have prohibited mandatory arbitration clauses in financial contracts, such as credit card agreements and car loans. Mandatory arbitration effectively bars consumer lawsuits against lenders and other financial-services providers.

The CFPB adopted this hotly disputed rule in July, under authority granted to it in the Dodd-Frank Act, to restrict mandatory arbitration of consumer disputes.

Congress revoked the rule in accordance with the Congressional Review Act, which enables Congress to nullify a regulation by majority vote within 60 working days after the regulation is announced. President Trump has indicated that he will sign this revocation.

The arbitration rule was pushed by CFPB Director Richard Cordray, with the strong backing of Sen. Elizabeth Warren (D-Mass.), who previously championed the Dodd-Frank Act's creation of the CFPB. The financial services industry strongly opposed the rule.

Partisan politics, of course, played a powerful role in the debate over the arbitration rule. The vote to revoke the rule was largely along party lines and occurred in the context of the ongoing Republican initiative to restructure the CFPB while forcing out Director Cordray, who may yet run for governor of Ohio as a Democrat.

The CFPB cannot revive its arbitration rule without congressional approval, which would require, as a practical matter, 60 votes in the Senate. Read more at THE HILL

NYC Could Lead the Way to Helping 26 Million Who Are "Credit Invisible"

As many struggling tenants in cities across the U.S. know, if there's a question of feeding your landlord's bank account or feeding your family, "the rent eats first." What if paying rent on time each month counted toward a renter's credit score? New York City's chief financial officer wants to find out.

Comptroller Scott Stringer is expanding efforts to encourage more landlords and property management companies to give tenants the option to have on-time rent payments reported on their credit, The New York Times reports. According to the Times, Stringer's office looked at a sampling of tenants paying less than $2,000, and found that 76 percent of them would see their credit scores improve if their on-time rental payments were included.

Higher credit scores typically provide greater access to credit and lower interest rates on credit cards, car loans and other loans. Low credit scores or limited credit history often mean borrowers turn to payday loans as the only option in cases of emergency. As I've previously covered, a 2016 Pew report estimated that 12 million Americans take out payday loans every year, paying $7 billion in fees, with most fees totaling much more than the loan amount.

According to the Times, the comptroller's report says about 30 percent of the low-income residents in the analysis would get a credit score for the first time and would have an average score of 700, which the report says is well within the range of a good credit score.

"This could create a powerful credit history that could lift you out of poverty," Stringer told the Times. Read more at NEXTCITY

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