Cordray’s Rumored Departure from CFPB & Impact on Payday Lending Rule
Richard Cordray, Director of the CFPB, is rumored to be planning to run as a Democrat for Ohio Governor. House Financial Services Committee Chairman, Jeb Hensarling, has accused him of allowing “personal political ambitions” to influence the bureau’s rule making. When pressured to respond to the rumors, Cordray stated in a letter to Hensarling, “You ask whether I intend to serve my full statutory term as the director of the CFPB or whether there is some other specific date on which I plan to resign. At this time, I have no further insights to provide on that subject.” Cordray’s term expires in July 2018 and he will not be reappointed by Trump.
The CFPB is scaling back its payday lending rule to get it implemented before Cordray’s rumored departure. The rule will now focus only on short term payday loans typically due in two weeks or the borrowers next payday. A final rule on short term loans is due in September 2017. The CFPB is expected to introduce a separate rule to address long term loans aka installment loans which typically have terms longer than 45 days. Even if the short term rule gets implemented it faces being overturned by the Congressional Review Act or by a newly Trump appointed replacement of Cordray. Both of these factors will influence the long term loan rule as well.
Operation Choke Point Still Needs to be Choked by Congress
The Department of Justice’s decision to put the chokehold on this over-reaching law which was hurting legitimate businesses has been met with a collective sign of relief. However, without a legislative fix from Congress, Operation Choke Point could be resurrected under a future administration. Congress must pass the Financial Institution Customer Protection Act to ultimately end Operation Choke Point. This Act would require an agency to prove that a business poses a material risk before requiring a financial institution to terminate a banking relationship with that business. The House has passed the measure but the Senate has yet to take up the measure.
Prepaid Card Rule Postponed Amid Pressure
Originally set to go into effect in October 2017, the rule’s implementation date has been postponed until April 2018. Additionally, the rule was eligible to be repealed via the Congressional Review Act. Republican Senator David Perdue of Georgia, one of the agency’s biggest critics, introduced a resolution to end it but could not gather enough votes before the deadline to repeal it expired in May 2017. The Prepaid Card rule essentially provides users of prepaid cards with the same protections that are provided to traditional debit cards; such as, free account balance information, timely dispute resolution, and limited liability on fraudulent transactions. The CFPB said the implementation postponement would give additional time to industry participants to implement the required changes as well as give the CFPB time to determine if they should change any of the rule’s provisions. Time will tell what changes are made between now and April 2018 including another potential postponement.