The CFPB's proposed rule on short-term lending has sparked strong reactions. Editorial boards, columnists as well as federal and state policymakers and business groups have firmly rejected a rule that would severely limit millions of Americans' access to credit and leave those who value and responsibly use payday loans with fewer options to manage their finances. Below is a selection of those reactions.
Editorials and Commentators
Wall Street Journal Editorial Board, "A Political Assault on Paydays"
- "Here's what government never considers: the alternatives. Some 20% of Americans are not served by banks, according to FDIC data, and three-quarters live paycheck to paycheck. Payday paternalists would leave many of these individuals no option except to bounce checks, with fees that can top 1,500%; stop paying the electric bill; or visit Fat Tony the loan shark. A separate Fed study found that bankruptcy and returned checks increased in states that had regulated payday lending out of existence."
Washington Post Editorial Board, "Regulators need to strike the right balance in limiting payday lending"
- "By its nature, small-dollar lending is always going to be a high-risk, low-reward business for both borrowers and lenders. Yet it's probably better to have such an industry in a legal form that's maximally protective to consumers than to drive it underground."
Wall Street Journal Columnist Holman W. Jenkins, Jr., "Payday Loans a Crony Capitalist Target"
- "[The rule] will drive out the small, local players who have dominated the industry in favor of big firms and consolidators who can afford the regulatory overhead. It will also favor companies that can substitute big data for local knowledge like, like . . . Well, like LendUp, the Google-backed venture that issued a statement Thursday applauding the CFPB rules."
Bloomberg View Editorial Board, "Regulate Payday Lending, But Not Like This"
- "The challenge for regulators is to curb this predatory lending without killing off a useful service â?¦ Unfortunately, the CFPB has proposed a much more complicated -- and much less effective -- approach. This would require lenders to run various checks on borrowers' ability to pay (and to satisfy other conditions), yet would provide no clear guidance on the permissible level of payments."
The Boston Globe Columnist Jeff Jacoby, "Payday loans are a poor option. No payday loans would be worse"
- "Without payday loans, many consumers will be left with worse options. In states that have banned such loans, households bounce more checks, endure more harassment by debt collectors, and are more likely to file for Chapter 7 bankruptcy."
Vanderbilt Law School Professor Paige Marta Skiba, "Are They All 'Debt Traps'?"
- "Oversight of payday loans is necessary, but enacting rules that will decimate the payday loan industry will not solve any problems. Demand for small, quick cash is not going anywhere. In addition, because the default rates are so high, lenders are unwilling to supply short-term credit to this population without big benefits (i.e., high interest rates). Consumers will always find themselves short of cash occasionally. Low-income borrowers are resourceful, and as regulators play whack-a-mole and cut off one credit option, consumers will turn to the next best thing, which is likely to be a worse, more expensive alternative."
CNBC Economics Reporter John W. Schoen, "Here's why we need payday lenders"
- "The underlying problem, argue critics of the government clampdown, is that wages for the bottom of the income ladder don't allow the typical household to make ends meet. So regulating payday lenders out of business, they argue, will only leave the most economically vulnerable nowhere to turn when they come up short on a rent check or car payment. The alternative - eviction or a visit from the auto repo man - just pushes them further down the economic ladder, these critics argue."
Community Financial Services Association of America CEO Dennis Shaul, "New federal rules hurt consumers: Opposing view"
- "The CFPB has failed to conduct the necessary research to determine whom to protect and how best to protect them. Instead, it has prejudged an entire industry. It has proceeded with the unshakeable conviction that it is acting in the public interest because the bureau believes it understands customer needs better than the customers do. And the CFPB completely ignores that so many states already have effective payday lending regulations in place."
Forbes contributor Tim Worstall, "The CFPB Is Not Regulating Payday Loans, It Is Abolishing Them"
- "The people who take out payday loans take them out because payday loans benefit those people. Why should they be stopped from doing that? Of course, the CFPB doesn't say that they are going to stop it: they are instead just saying that there will be regulations."
Investor's Business Daily Columnist Star Parker, "The Nanny State And Payday Loans"
- "After years of wasteful, expensive, counterproductive federal programs, allegedly trying to help low-income citizens, but in fact just causing them problems, how about the government bowing out for a change?...Let's get rid of some bureaucrats meddling in other people's lives, cut federal spending, cut taxes, reduce regulations, get the economy growing and create jobs. This is what folks need. Not the nanny state."
Heritage Foundation Research Fellow in Financial Regulations Norbert Michel, "The Problem With the Government's New Small-Dollar Loan Regulation"
- "As difficult as it may be for some people to admit, payday lenders provide a valuable service for which countless consumers have demonstrated they are both willing and able to pay."
Watchdog.org's National regulatory reporter Eric Boehm, "Nanny State of the Week: CFPB knows what is best for your personal finances"
- "There are times when people need a quick infusion of cash and can't get it anywhere else. Forcing those lenders out of business does not change that - some people will, on occasion, need the services of a payday lender, whether they continue to exist or notâ?¦ But let's not pretend that the government is helping people by shutting down the payday loan industry. It's helping crony capitalists who want to horn in on the business. And, remember, this is financial advice - although, calling a federal fiat "advice" is really being too kind to federal fiats - coming from an institution $19 trillion (and counting) in the red... When the government decides to decide for you, it means you don't get to decide for yourself. That's life in the Nanny State."
Professor of Law at George Mason University School of Law Todd Zywicki, "Get ready for Obamaloans: New regs could drive payday lenders out of business"
- "Although expensive, payday loans are less expensive than available alternatives. Misguided paternalistic regulation that deprives consumers of access to payday loans would likely force many of them to turn to even more expensive lenders or to do without emergency funds."
Payment News PYMNTS, "The Great Payday Lending Fizzle"
- "First, the CFPB seems to have failed to listen to consumers - or a diverse enough sample of consumers - to include those who have been helped by these products and used them responsibly. Second, they've found a way to punish a problem but forgot the part about offering any kind of solution or a plausible framework for getting to one. Third, it took a sledgehammer to a problem that could have used a scalpel. There are bad actors, and they should not be allowed to prey on consumers. Taking steps to tamp that down is admirable. But there are a lot of good actors who may be forced to close down as a result of a decision that seems to have failed to take into consideration both the situations for which these loans are needed and the costs associated with imposing the same underwriting standards on a $375 loan that are required on a $375,00 loan."
Federal and State Policymakers
Sen. David Vitter (R-LA), "CFPB 'Payday Rule' Issued Hastily Ahead of Upcoming GAO Report on Accountability"
- "The CFPB is setting a dangerous precedent for further job-killing regulatory overreach without proper oversight or input from those entities a policy directly affects."
(Last year, Vitter requested a GAO study on the adequacy and thoroughness of the CFPB's analysis of small entity impacts as it relates to the "Payday rule" rulemaking process. That report is due shortly.)
Sen. David Perdue (R-GA), " New CFPB Rule to Crush Payday Lending Industry Cheered by Google Backed Competitor"
- "The Consumer Financial Protection Bureau was spawned from the disastrous Dodd-Frank financial regulation law. Right now, the CFPB is a rogue agency that dishes out malicious financial policy and creates new rules and regulations at whim without real Congressional oversight."
House Financial Services Committee Chair Jeb Hensarling (R-TX), "For Struggling Americans, the Struggle Just Got Harder"
- "Just days after the Federal Reserve reported that almost half of American families say they would struggle to pay for emergency expenses of $400, here comes Director Cordray to make their struggle even harder. Accountable to no one, he alone decides for all Americans whether they can take out a small-dollar loan to meet emergency needs."
Rep. Alcee L. Hastings (D-FL), "Payday lending rules that work"
- "If the CFPB imposes regulations without carefully balancing the needs of consumers, it will fail to provide financial protection to those who need it most. I fear that in trying to protect consumers, the CFPB's rule will cut off access to short-term credit without providing another avenue for those who need these types of loans. This, in turn, could force consumers to turn to more expensive alternatives, or worse, unregulated or otherwise illicit venues for securing loans."
Rep. Randy Neugebauer (R-TX), "Neugebauer Reacts to CFPB's Proposed Small Dollar Lending Rule"
- "The CFPB's proposed rule represents Washington at its worst and will harm America's unbanked and underbanked consumers. Short-term, small dollar credit is essential to the roughly 51 million American consumers who don't have sufficient access to traditional banking services or products."
Rep. Steve Palazzo (R-MS), "House panel would block Obama rules on 'payday' loans"
- "I don't want my constituents being forced to loan sharks or forced out onto the streets because another government agency wants to regulate businesses out of business. Drying up all of the access to credit will cause small businesses to close, people to lose their jobs, and many to turn to less-regulated, often illegal means of securing credit."
State Rep. Kris Langer (R-AL), "Churches to weigh in on payday lender fight"
- "Just because you take away a service, that need doesn't go away. If you're in a crisis situation and you don't have that option, where do you have left to go?"
Industry and Business Groups
American Bankers Association, "Payday-Lending Curbs: Thumbs Down From Banks, Thumbs Up From Fintech"
- "While the bureau has frequently expressed interest in expanding banks' trusted role in this market, the proposal fails to do so in a meaningful way and will significantly limit the availability of small-dollar credit."
Consumer Bankers Association Senior Counsel David Pommerehn, "Payday Lenders Accused of Abusing Consumers Face U.S. Crackdown"
- "The consumer demand will not go away. There aren't a lot of banks in this space now and I don't think that will change as a result of this rule."
President and CEO of the Consumer Bankers Association Richard Hunt, "New Rules Aim to End Payday Loan 'Debt Traps', CFPB Says"
- "The Bureau continues to miss the mark for millions of Americans struggling to make ends meet and effectively forces most banks to stay on the sidelines due to greater compliance burdens. Consumers across the country will now turn to pawnshops, offshore lending, and fly-by-night entities that will be more costly to them."
EZ Money Regional Director Brad Hill, "Lenders don't like payday loan regulations, Omaha charities say they're needed"
- "If this legislation would go into effect, you're going to chase people to offshore lenders that's there's absolutely no regulation on as opposed to states that are regulated like us."
FiSCA Executive Director Ed D'Alessio, "Obama's Consumer Watchdog Agency Takes Flak From Arkansas AG, Industry Groups On Payday Loan Rules"
- "Based on these proposed rules, the CFPB has singled out low- and moderate- income Americans who are fully able to make their own financial decisions for discriminatory treatment. By fashioning rules that dismiss the way in which millions of ordinary Americans live their lives the CFPB has denied these people credit and created a new form of redlining."
CommonBond CEO David Klein, "Online lenders may fill payday loan void"
- "The notion that lenders should account for a borrower's ability to repay is what we consider to be responsible lending. Any lending operating procedure is well served by doing it."
Enova CEO David Fisher, "Chicago online lender Enova preps for payday loan regulation"
- "The rule could affect products that comprise 60 to 65 percent of the company's total revenue if the proposed rule is adopted without additional changes. Revenue for impacted products could decline by 30 to 40 percent from today."
Curo Financial Technologies CEO Bill Baker, "Executive: Proposed federal payday loan rules could cost Wichita jobs"
- "We're not against having regulations that make sense at the federal level. The biggest thing is that we don't want to see credit turned off to people that have nowhere else to turn. Our customers understand the process and the product. I think a lot of the folks making the regulations and making a lot of the comments in the media - even some consumer advocates - are people who have never had to take a short-term loan. There's a delta between the reality and the messaging out there."
President/CEO of One Detroit Credit Union Hank Hubbard, "Payday Rules Exempt PALs"
- "These rules may place even more - real or perceived - roadblocks to more responsible lenders trying to address the very obvious demand," he said. "I worry that it could make unregulated or illegal alternatives even more prevalent. Those are even more toxic than what we have now."
Community Financial Services Association of America, "Feds issue rules to stop payday loan abuses"
- "What is missing in the bureau's rule is an answer to the very important question, 'Where will consumers go for their credit needs in the absence of regulated nonbank lenders?'"
CEO of CFSA Dennis Shaul, "Payday loans, auto title loans face tough new crackdown"
- "The CFPB's proposed rule presents a staggering blow to consumers as it will cut off access to credit for millions of Americans who use small-dollar loans to manage a budget shortfall or unexpected expenses. It also sets a dangerous precedent for federal agencies crafting regulations impacting consumers."