Donald Trump has said he will cut regulation. One area that could experience big changes: consumer lending.
Here are some areas to watch, especially as a Republican Congress and Mr. Trump will likely look to clip the wings of the Consumer Financial Protection Bureau.
Mortgage Discrimination Cases. Over the last few years, the CFPB and Justice Department ramped up investigations into whether banks and other mortgage lenders were discriminating against minorities. Last year, the Justice Department said it had increased the number of active redlining investigations to its highest level in six years; bank lawyers told The Wall Street Journal they were handling the highest number of such cases than at any time in the past two decades.
That could change significantly. A Trump administration would likely roll back fair lending enforcement over bank and other lenders’ mortgage operations, said Stuart Gabriel, director at the Ziman Center for Real Estate at the University of California, Los Angeles. “It will be 180 degrees different…these enforcement activities would be of significantly lower priority.” A weaker CFPB “may take the heat off…fair lending enforcement,” wrote Jaret Seiberg, an analyst at Cowen and Company, in a note Wednesday morning.
Regulatory “Excesses.” The mortgage banking industry says it was working closely with advisers to both presidential candidates over the past year. “The Trump team had been very focused on what they view as regulatory excesses…about rolling back and getting rid of Dodd Frank,” said David Stevens, president and chief executive of the Mortgage Bankers Association.
That included a focus on where regulation had resulted in higher costs and more complexity for lenders, which could hold back mortgage lending, he said. “If Trump follows through with that part of his promise, it may ultimately result in lowering costs for creating mortgages and may make some lenders more eager to lend.”
Community banks and other small lenders have been vocal about the rising costs of regulation. They have argued higher compliance and infrastructure expenses made it too costly to actively participate in mortgage lending.
Payday Loans. Voting in one state on Tuesday confirmed that public support for clamping down on abusive practices related to payday loans remains widespread between both Democratic and Republican voters. Consumer advocates are hoping this helps bolster the CFPB’s efforts to regulate the loans.
South Dakota residents who voted for Trump also overwhelmingly voted in favor of a state measure that caps interest rates on payday loans at 36%; around three-quarters of voters backed the measure.
Payday lenders in the state have been able to charge triple-digit interest rates under current law. Voters also rejected a competing measure pushed by the payday industry that would have allowed lenders to charge any interest rate they wanted. That made South Dakota the fourth state in which residents voted to place rate caps on payday loans since 2008, said Mike Calhoun, president of the Center for Responsible Lending.
Stocks for payday lenders and other firms that specialize in high-cost loans, includingWorld Acceptance, Enova International and OneMain Financial, were up Wednesday and again Thursday morning. “There is a very clear regulatory relief rally,” said Jefferies analyst John Hecht.
Arbitration, Debt Collection and Overdraft Protection. Many rulemaking decisions around consumer lending practices are so far in the early stages. The election has raised questions about whether they will materialize.
The CFPB unveiled a plan in the spring, for example, that would allow consumers to band together in class-action lawsuits to sue banks over hidden fees and other issues on products ranging from credit cards to private student loans. The proposed rule would restrict the use of arbitration clauses by banks.
However, the final rule hasn’t been unveiled yet. “Proposed rules pertaining to arbitration…are in serious jeopardy,” said Alan Kaplinsky, an attorney at Ballard Spahr who leads its consumer financial services group and who pioneered the use of arbitration provisions in consumer contracts.
Also up in the air are debt-collection rules meant to limit the number of times that collectors contact consumers to try to recover unpaid debts. The CFPB released its proposal on this during the summer.
Overdraft-fee practices were also on the regulator’s to-do list. The bureau had been expected to roll out proposed rules that would have limited banks’ ability to reorder purchases in a way that increases the fees they must pay for overdrawing an account.
Student Loans. A provision in Obamacare removed private student lenders from the business of originating federal student loans. Now, there are calls to bring private lenders back into the fold.
“The federal government should not be in the business of originating student loans,” according to a long list of changes advocated by the Republican party’s platform. “In order to bring down college costs and give students access to a multitude of financing options, private sector participation in student financing should be restored.”
Since 2010, all federal student loans have been extended by the federal government. Banks’ main role in the student-loan market has been mostly limited to originating private student loans, which account for less than 10% of outstanding student loan balances.
Source: The Wall Street Journal, Nov. 10, 2016
http://blogs.wsj.com/moneybeat/2016/11/10/from-mortgages-to-payday-loans-how-trump-will-impact-consumer-lending/
