Federal: Comment Letter to the CFPB in response to its Notice of Intent to Make Preemption Determination under the Truth in Lending Act

The Honorable Rohit Chopra
Director
Consumer Financial Protection Bureau
1700 G Street, NW
Washington, DC 20552

Re: Intent to Make Preemption Determination under the Truth in Lending Act (Regulation Z) Docket No. CFPB-2022-0070

Dear Director Chopra,

On behalf of the American Fintech Council and its members, we thank the Consumer Financial Protection Bureau (CFPB or Bureau) for the opportunity to comment on its Intent to Make Preemption Determination under the Truth in Lending Act (TILA or Regulation Z).

AFC’s mission is to promote an innovative, transparent, inclusive, and customer-centric financial system by supporting the responsible growth of lending, fostering innovation in financial technology (Fintech), and encouraging sound public policy. AFC members are at the forefront of fostering competition in consumer finance and pioneering ways to better serve underserved consumer segments and geographies. For instance, AFC has publicly supported 36 percent rate caps at state and federal levels, which is a key component of addressing responsible lending. Our members are also lowering the cost of financial transactions, allowing them to help meet demand for high-quality, affordable products. We welcome the opportunity to show our support for CFPB’s determination that TILA does not preempt certain provisions of New York State’s Commercial Financing Law. We also appreciate the opportunity to support CFPB’s proposal to make similar preemption determinations regarding California’s law, and regarding Utah’s and Virginia’s less protective laws, because ensuring regulatory clarity in the financial services industry is an important issue for our members.

In the current regulatory structure, AFC’s members experience direct licensing and regulatory requirements in all 50 states and the District of Columbia and/or federal regulation as banks or through bank partnerships. While the varied state requirements can create business challenges for our members, we recognize the importance that these state laws and regulations have in ensuring proper protections for consumers and small businesses.

Recognizing the importance state disclosure laws have in extending crucial protections beyond consumer lending, AFC partnered with relevant stakeholder groups, educated regulators and policymakers, and helped build the coalitions needed to pass the state disclosure laws for small business in New York and California that are now in question under this notice. In general, the Bureau has been clear on the parameters of TILA’s preemptive power. As correctly noted by Responsible Business Lending Coalition’s comment on this Notice of Determination, the CFPB has an established precedence on identifying and correctly determining when state laws should be preempted by TILA. AFC agrees with the points discussed in the Responsible Business Lending Coalition's comment letter and aligns with the Small Business Borrower’s Bill of Rights.

Specifically, as it relates to the New York State Commercial Financing Law’s provisions in question in the initial request for CFPB’s determination on TILA preemption, we agree with the Bureau’s methodology and determination. As the Bureau noted in its Preemption Determination, the provisions established under TILA and implemented in Regulation Z apply solely to consumer lending. The New York state law in question pertains solely to commercial financing. Further, the state laws under consideration for similar CFPB determinations (i.e., laws in California, Utah, and Virginia) also solely cover types of commercial lending. TILA’s preemptive power over state laws is predicated on conflicts between provisions as they relate to activities covered under the federal statute, which is solely consumer lending. As both the federal and state laws are activity-based and do not cover the same activities, we agree with the Bureau that TILA does not preempt the New York State Commercial Financing Law in general, nor the specific provisions in question.

Thus, we agree with CFPB’s determination on the inherent limitations of TILA and recognize that these state disclosure laws in question helped to fill a gap existing in small business lending disclosures to afford small business borrowers with the same or substantially similar protections they experience as consumer borrowers. While the provisions in question may again present additional nuances to the financial regulation of products and services offered in New York State, we agree that the provisions do not materially contradict any provisions in TILA.

CFPB’s authority to make determinations about TILA preemption of state laws is important for providing functional guidance to bank and nonbank financial institutions offering lending products and services in those states. To the extent that provisions of a state law materially contradict TILA, CFPB—under its authority—should clarify that TILA preempts the state law. Therefore, to help ensure regulatory clarity for companies operating in these states, we recommend that CFPB use its authority to initiate preemptive determinations about TILA in California, Utah, Virginia, and any other state laws the CFPB deems appropriate.

Again, AFC and its members thank you for the opportunity show our support for CFPB’s determination that TILA does not preempt certain provisions of New York State’s Commercial Financing Law and comment on the importance and need for CFPB to make similar preemption determinations. AFC believes that through this determination the Bureau will empower state legislators to enact their own small business lending disclosure bills. We hope that these efforts will empower Congress to pass a national small business lending disclosure bill. We look forward to engaging with you and your staff on these topics in the future.