An installment loan involves a borrower receiving a lump sum of money that they agree to pay back in monthly installments. A common type of installment loan is a mortgage.
In October 2017, the Bureau of Consumer Financial Protection (BCFP) published what should be a final rule, imposing more stringent stipulations for auto title loans, as well as some other high-cost installment loans and long-term loans with balloon payments.
In January 2018, the Bureau announced its reconsideration of the published rule, under the leadership of a new leader and acting director, Mick Mulvaney.
There were over a million comments on the initial rule issued by the BCFP opposing the statement, including comments from thousands of customers that are beneficiaries of auto title loans.
The Bureau of Consumer Financial Protection’s final ruling on the regulation of installment loans is to be effective from 2019, but small-dollar lending industry groups have filed a motion of preliminary injunction to stop the decision from taking effect. The motion attempts to put a stop to the ruling and explicitly points out the huge losses that installment loan lenders will incur if the Bureau’s ruling fully takes effect.
According to the Plaintiff’s press release and the Community Financial Services Association of America (CFSA), some small businesses are scaling back to comply with the Bureau of Consumer Financial Protection’s new regulation on small-dollar loans. The BCFP’s ruling has prompted installment loan businesses to lay off employees due to the high financial costs incurred.
Small-dollar lenders are concerned about protecting their businesses. As the Bureau continues to reconsider the rule, these lenders look to entirely put an end to this ruling even before it kicks off. The motion aims at safeguarding small businesses from incurring extra costs and even protects them from laying off staff or shutting stores due to the high costs incurred.
As reported by ACA International, Community Financial Services Association of America (CFSA) filed a lawsuit in 2017, protesting the rule that was implemented by the former director, Richard Cordray. The lawsuit alleges that the proposed rule violates the Administrative Procedure Act.
The preliminary injunction was filed in September. 14 2018 will allow BCFP to look into the initial ruling and reevaluate how the rule will affect borrowers. This is so that all borrowers of all credit classes will continue to have access to vehicle title loan services pending when the rule will be sorted out.
The injunction, which enlists Mick Mulvaney as the plaintiff in the complaint, is legally acceptable and is expected to thrive on merits of the law. The reason is that the original rule is illicit and unauthorized, possibly due to whimsical resolutions by the Bureau.
Considering the ACA’s point of view in the motion, the BCFP’s strategy was inappropriate.
There is hope that under new leadership, a more appropriate procedure will be implemented so that any new regulation will not only be realistic but will also solve an actual problem rather than complicate an existing one.
Any proposed solution by the Bureau should be consistent with the necessary legislative guidelines and also based on actual market facts.
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