CURO Group Holdings Corp., a nonprime lender that wants to go public, sees a rosier outlook for its business now that the Consumer Financial Protection Bureau has seen a change in leadership.
In its registration statement, CURO said its business would face material adverse effects from the CFPB's small-dollar lending rule, which was finalized in October. The rule is slated for enactment in July 2019, but CURO doubts the current version will go into effect now that Richard Cordray has left the CFPB.
"We believe this effectively kills the small-dollar lending rules as written," CURO COO William Baker said during a presentation for the IPO, which is expected to price the week of Dec. 4.
It is possible that the new leadership of the CFPB will prevent or delay the enactment of the payday lending rule, said Reed Smith LLP Partner Robert Jaworski, who is part of the law firm's financial industry group. But it is unclear whether the rule is a top priority for Mick Mulvaney, President Donald Trump's selection to serve as the regulator's acting director.
Some lawmakers would like to see the rule go away; several members of the House of Representatives on Dec. 1 introduced a bill that would nullify it.
The CFPB rule requires lenders to conduct tests to help them make reasonable determinations about whether customers can repay certain short-term loans. The rule is expected to significantly reduce the volume of payday loans, which are typically short-term, high-cost loans that require borrowers to repay all at once, as opposed to via installments.
The CFPB estimated that the rule could lead to a roughly 50% decline in single-pay loans, Baker said. In its registration statement, CURO said many of its short-term borrowers would not pass the full-payment test and that determining borrowers' ability to repay is costly.
CURO has been reducing its reliance on the single-pay loans. For the nine months ended Sept. 30, 11% of CURO's total revenue came from U.S. single-pay loans. That is down from 14% for all of 2016. By 2020, CURO expects the percentage to drop to 5% to 7% of its U.S. revenue, Baker said.
Other CFPB rule provisions, including the penalty fee prevention stipulation, could affect some longer-term loans. Under the penalty fee prevention provisions, if two consecutive attempts to collect from a borrower's account are unsuccessful because of insufficient funds, lenders need to obtain authorization from the customer before making further withdrawal attempts.
"Obtaining such authorization will be costly and in many cases not possible," CURO said in the filing.
In the filing, CURO said the penalty fee prevention would apply to all of its loans and would have a greater impact on its business than the payment test for short-term loans. CURO added that the penalty prevention provisions would require substantial modifications to its current practice, but the company is optimistic that the new leadership will change the rule.
"[Cordray's] successor could suspend, delay, modify or withdraw the CFPB rule," the company said in the filing. "Further, we expect that important elements of the CFPB rule will be subject to legal attack."
