Preemption Issues Heat Up in the Payday Lending Space

Last week, Director Cordray testified at a hearing before the House Financial Services Committee during the CFPB’s Semi-Annual Report to Congress. As part of those proceedings, the issue of federal preemption arose in the context of the Bureau’s payday agenda and forth-coming proposal, which is expected to be released in the next 3 months.

At risk are the approximately 38 states who currently offer some form of the payday / small dollar product. One of the exchanges focused on the strengths of Florida’s payday lending law, Fl. Stat. Ann. § 560.401 et seq., which has been incorporated, in part, into H.R. 4018 the “Consumer Protection and Choice Act.” The Bill is currently before the House Committee on Financial Services and is a direct attack on the CFPB’s attempt to preempt existing state laws. In short, the Bill would prevent the CFPB from proposing payday rules or regulating the industry for two years.

Additionally, H.R. 4737, the “State and Tribal Government Sovereignty Protection Act of 2016” was  introduced on March 14, 2016 by Rep. Mick Mulvaney (R. S.C.) who is a member of House Committee on Financial Services. As drafted, H.R. 4737 proposes a two-year moratorium on the Bureau’s issuance or enforcement of any rule or regulation with respect to payday loans, vehicle title loans, or other similar loans. It also requires the Bureau to justify its rules prior to issuance and creates a five-year opt-out provision for states and federally recognized tribal governments. H.R. 4737 has also been referred to the House Committee on Financial Services.

The preemption debate will likely heat up in the coming months as the industry braces itself for new regulation.