Consumer Financial Protection Bureau (CFPB) Director Richard Cordray made a couple of things abundantly clear during his appearance before the House Financial Services Committee last week:
- State short-term lending regulations are only instructive to the CFPB’s rulemaking process if they prohibit–either outright or effectively–payday lending; and
- The CFPB remains unmoved by the overwhelming evidence indicating that illegal lenders and scammers, not state-regulated lenders, are the real problem.
Members of the committee pressed Director Cordray on what the CFPB has learned from states in formulating its forthcoming short-term lending rules. Despite assurances that the Bureau is looking at all 50 states, Cordray’s answer suggests they haven’t learned much, unless the states in question are those that actively or effectively ban payday lending. In fact, the CFPB’s initial regulatory framework is an entirely new and untested invention that looks nothing like short-term lending in any state. His dismissive responses indicate the CFPB appears to have no interest in understanding the credit needs and experiences of hardworking Americans.
For instance, Cordray remarked that in states such as New York with payday lending bans, “[Payday lending] doesn’t really exist. And yet, I take it your constituents are managing somehow or other, and it’s true of 13 other states across the country.”
Once again Director Cordray disregarded evidence from state regulators and the CFPB’s own complaint database, which reveals that even in those revered states with short-term lending bans, consumers’ credit needs persist: CFPB and state regulator data reveal similar levels of complaints across the states, with or without regulated short-term lending. Further, throughout the hearing, the director sought to downplay the fact that payday lending complaints account for a small fraction of total consumer complaints, with the vast majority of those complaints concerning scam artists and unregulated lenders who operate illegally. Yet Cordray and the CFPB continue to only give lip service to this growing problem, preferring a regulatory framework that would eliminate the majority of the regulated short-term lending market, sending consumers straight into the arms of illegal lenders.
Director Cordray claimed that the Bureau has been “very carefully going to school on what the states do.” But when pressed by Rep. Dennis Ross (R-FL) about the Florida congressional delegation’s recommendation that the Bureau at least consider Florida’s state regulations as a model–a recommendation first made in a letter to Cordray in April and reiterated in a meeting with him several weeks ago–the Director seemed disinclined to even consider the idea, quipping, “not everyone thinks the Florida model is the greatest since sliced bread.”
Director Cordray also expressed surprise at the difficulty and complexity of developing short-term lending rules. But anyone with a basic understanding of many Americans’ tenuous financial situations can see that functionally eliminating short-term lending through prohibitive rules–the preferred regulatory approach of consumer activists and, likely, many CFPB staffers–fails to address the unabated credit needs of millions of Americans.