Can the CFPB Stop Online Lending?

If you’re interested in Tribal lending, you have to read Hilary B. Miller’s article titled:  The Future of Tribal Lending Under the Consumer Financial Protection Bureau.

My take is that the CFPB would not initially go after the Indian tribes.  Rather through discovery of the Tribal Lending Entity (TLE), they could track down their “arms” or non-tribal financiers, servicers, aiders, and abettors and put pressure on them.

Here is the part of the article that I find most compelling.  What it’s saying is if the CFPB goes after the TLE or “Covered Persons”, but will not be able to apply state law to their review.  CFPB is expressly prohibited from enforcing “usury”.  On a personal level, I’ve been frustrated at the draconian laws created in many states in connection with small loans.   The problem is that many of these laws hurt and piss off the consumer, not to mention make the lenders life miserable.

This conclusion, however, is not the end of the inquiry. Since the principal enforcement powers of the CFPB are to take action against unfair, deceptive, and abusive practices (UDAAP), and assuming, arguendo, that TLEs are fair game, the CFPB may have its enforcement hands tied if the TLEs’ only misconduct is usury. Although the CFPB has virtually unlimited authority to enforce federal consumer lending laws, it does not have express or even implied powers to enforce state usury laws. And payday lending itself, without more, cannot be a UDAAP, since such lending is expressly authorized by the laws of 32 states: there is simply no “deception” or “unfairness” in a somewhat more pricey financial service offered to consumers on a fully disclosed basis in accordance with a structure dictated by state law, nor is it likely that a state-authorized practice can be deemed “abusive” without some other misconduct.  Congress expressly denied the CFPB authority to set interest rates, so lenders have a powerful argument that usury violations, without more, cannot be the subject of CFPB enforcement.

What can happen is the CFPB comes down on acts that are characterized as deceptive or abusive as they pertain to the federal law, such as:

  • Data-sharing issues
  • Failure to give adverse action notices under Regulation B
  • Automatic rollovers, failure to impose limits on total loan duration
  • Excessive use of ACH debits collections

In a nutshell, they can make your life miserable.

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