Two rare allies — a consumer group and a banking association — are urging the Consumer Financial Protection Bureau to start regulating larger fintech lenders that provide installment payments and other types of personal loans.
The Center for Responsible Lending and the Consumer Bankers Association lettered Thursday calling on CFPB director Rohit Chopra to develop a rule that would extend the agency’s jurisdiction to lenders that the groups believe should be subject to the same rules as large banks and credit unions.
“Although our views on consumer finance regulation issues often differ, the CRL and CBA share a common belief that the lack of a rule defining larger participants in the personal credit market has created an unlevel playing field and a major risk to consumers, the Bureau said can and should be resolved through greater participation in rulemaking,” the letter said.
The CFPB previously had the idea of expanding its remit in 2017, when the agency stated in its agenda that it was “now working on the development of a proposed rule that would identify non-banks as ‘larger participants’ in the consumer credit market, including installment loans for consumers, would define and vehicle title loans.” However, in 2018, under the Trump administration, the agency classified the rulemaking as “inactive.”
The groups urged the CFPB to reconsider rulemaking as the number of fintech firms targeting subprime clients grows. Banks have long complained that fintech non-banks don’t have the same rigorous oversight that they do.
“The current regulatory regime creates both an unlevel playing field and a significant risk that consumer protection issues affecting vulnerable consumers will go undetected,” the letter reads. “Banks with assets in excess of $10 billion are, of course, subject to CFPB oversight, while non-custodians offering the same products – or risky products – are not. This means that the Bureau does not have the same window into the practices of those non-depository entities as it has with regard to depositories.”
The groups also refer to the buy-now/pay-later market, which they say is confusing because it’s sometimes unclear whether the BNPL firms are offering closed-end loans. Chopra promised to apply consumer protection laws to BNPL companies in a press conference held earlier this week.
“We recommend that the bureau cover both closed installment loans and perpetual lines of credit,” the groups said. “The truth is that the line between these two products is often blurred: lenders offering closed-end loans typically encourage consumers to re-borrow at least up to the amount of the original loan when repaying their loan, much like a perpetual line of credit, while perpetual loans can be structured so that each drawdown is repayable in fixed payments over a fixed term, making them very similar to a perpetual loan.”