Two rare allies — a consumer group and bank trade association — are urging the Consumer Financial Protection Bureau to start regulating larger fintech lenders that make installment and other kinds of personal loans.
The Center for Responsible Lending and the Consumer Bankers Association petitioned CFPB Director Rohit Chopra in a letter Thursday to develop a rule that would expand the agency's jurisdiction to include such lenders, which the groups argue should be subject to the same rules as large banks and credit unions.
"Although our views on consumer financial regulatory issues often diverge, CRL and CBA share a common belief that the absence of a rule defining larger participants in the market for personal loans has created an unlevel playing field and a large risk to consumers that the Bureau can and should resolve through a larger participant rulemaking," the letter said.
The CFPB previously entertained the idea of expanding its purview in 2017, when the agency said in its agenda that it "is now working to develop a proposed rule that would define nonbank 'larger participants' in the market for personal loans, including consumer installment loans and vehicle title loans." In 2018, however, the agency under the Trump administration classified the rulemaking as "inactive."
The groups called on the CFPB to again consider the rulemaking as the number of fintech firms targeting subprime customers grows. Banks have long complained that fintech nonbanks don't have the same kind of strict oversight that they do.
The Consumer Financial Protection Bureau will bring BNPL fintechs under its supervision following a monthslong inquiry into consumer credit risk and data exploitation. "It's critical that this category does not hide in the shadows," says CFPB Director Rohit Chopra.
"The current regulatory regime creates both an unlevel playing field and a significant risk that consumer protection issues affecting vulnerable consumers will go undetected," according to the letter. "Banks with assets above $10 billion are, of course, subject to supervision by the CFPB while nondepositories offering the same products — or risky products — are not subject to supervision. That means that the Bureau does not have the same window into the practices of these nondepositories as it has with respect to depositories."
The groups also call out the buy now/pay later market, which they say is confusing because it's sometimes unclear if the BNPL companies are offering closed-end loans. Chopra
"We recommend that the Bureau cover both closed-end installment loans and open-end lines of credit," the groups said. "In truth, the line between these two products is often indistinct: Lenders offering what are, in form, closed-end loans typically encourage consumers, as they pay down their loan, to reborrow at least up to the amount of the original loan much like an open-end line of credit while open-end loans can be structured such that each draw is repayable in fixed payments over a fixed term, thereby closely resembling a closed-end loan."
