Two rare allies — a consumer group and a banking trade association — are urging the Consumer Financial Protection Bureau to begin regulating large fintech lenders that provide installment and other types of personal loans.
The Center for Responsible Lending and the Consumer Bankers Association on Thursday asked CFPB Director Rohit Chopra to draft a rule that would expand the agency’s jurisdiction to include such lenders, which the groups say should be subject to to the same rules as the big banks and credit. unions.
“While our views on consumer financial regulatory issues often diverge, CRL and CBA share a common belief that the lack of a rule defining large participants in the personal loan market has created an uneven playing field. and a significant consumer risk that the Bureau can and should address through broader participant regulation,” the letter states.
The CFPB had previously considered expanding its scope in 2017, when the agency said in its agenda that it was “currently working on a proposed rule that would define ‘large participants.’ non-banks in the personal loan market, including consumer installment loans and vehicle title loans.” In 2018, however, the agency under the Trump administration categorized the rulemaking as ” inactive”.
The groups have called on the CFPB to re-examine regulations as the number of fintech firms targeting subprime customers grows. Banks have long complained that non-fintech banks aren’t subject to the same kind of strict oversight as they are.
“The current regulatory regime creates both a level playing field and a significant risk that consumer protection issues affecting vulnerable consumers will go undetected,” according to the letter. “Banks with assets exceeding $10 billion are, of course, subject to CFPB oversight, while non-custodians offering the same products – or risky products – are not subject to oversight. This means that the Bureau does not have the same window into the practices of these non-custodians as it has with respect to custodians.”
The groups also call the buy now/pay later market, which they say is confusing because it is sometimes unclear whether BNPL companies offer closed-end loans. Chopra pledged to apply consumer protection laws to BNPL businesses at a press conference held earlier this week.
“We recommend that the Bureau cover both closed installment loans and open lines of credit,” the groups said. “In truth, the boundary between these two products is often indistinct: lenders who offer what, in form, are closed-end loans, generally encourage consumers, when repaying their loan, to re-borrow at least until up to the amount of the original loan, such as an open-ended line of credit, while open-ended loans can be structured so that each drawdown is repayable in fixed installments over a fixed term, thus closely resembling a loan to undetermined duration.”