Monday, April 18, 2016

CFPB tainted in payday lending regulations, must monitor long-term loans

By Stephanie K. Mann, J.D.

Senator David Vitter (R-La) continues to question the conflict of interest of Consumer Financial Protection Bureau Assistant Direct Corey Stone on payday lending. In a letter to CFPB Director Richard Cordray, Vitter emphasized his “serious concerns” about Stone’s ability to remain unconflicted during the rulemaking process of the bureau’s “Payday rule.”

“It’s unethical and unacceptable for a federal bureaucrat to craft a regulation that would directly benefit himself or his family, and yet it certainly appears as though the CFPB has allowed exactly that to happen,” said Vitter. “Considering the immense impact this rule will have on credit bureaus and the payday industry, I strongly urge Director Cordray to investigate and confirm that Corey Stone’s conflict of interest did not impact the development of the ‘Payday rule’ before moving forward with implementation.”

Conflict of interest.
According to Vitter, prior to joining the CFPB, Stone was an Executive at Pay Rent, Build Credit, Inc. which was acquired by MicroBilt, which is used extensively by the payday industry. As part of the acquisition, Stone received MicroBilt shares, which he sold to his brother for a reported $18,000. Today, these stocks are valued at approximately $250,000 to $500,000.

In the letter, Vitter asks Cordray to clarify Stone’s role in crafting the “Payday rule,” which could potentially increase business and profitability for companies, including MicroBilt, because the rule is reported to require potential lenders to use services just like those offered by MicroBilt. Vitter has also requested Stone’s Covered Relationships and Financial Interests ethics review document.

Long-term payday loans. In a separate letter to Cordray regarding payday loans, the Center for Responsible Lending has urged the bureau to examine longer-term payday loans, which may be vulnerable once the CFPB cracks down on traditional, short-term payday loans. To address all of the concerns with long-term payday loans, "it is critical that the CFPB require every lender to design, underwrite and service its loans to ensure that the great majority of borrowers can repay the loans, on their original terms, without reborrowing while meeting other expenses," the letter says.

The letter highlights the following hallmarks of predatory long-term payday and car title loans:

  • Repeat refinancing: Refinancing a high-cost loan is an extremely strong indicator that the borrower has been unable to repay the loan on its original terms without re-borrowing.
  • Cash-grab for the lenders: In all of these long-term loans, just as in payday loans, lenders can reach into borrowers’ bank accounts and grab their monthly payments.
  • Little or no pay-down of principle: These loans are designed to extract substantial payments from borrowers for an extended period of time with little progress in repaying the loan. 
For more information about [ ], subscribe to the Banking and Finance Law Daily.