Since its inception, the Consumer Financial Protection Bureau (CFPB) has publicly committed to creating a level playing field upon which competing credit products are held to the same regulatory standards.
- "The purpose of all our outreach, research, and analysis on these issues is to help us figure out the right approach to protect consumers and ensure that they will have access to a small loan market that is fair, transparent, and competitive." - CFPB Director Richard Cordray
- "The CFPB's supervision of nonbank financial service providers will serve to level the playing field between banks and non-banks. For too long, the uneven regulatory burdens between banks and nonbanks have distorted the competition for customers' business." - Elizabeth Warren, Former Special Advisor to the Secretary of the Treasury for the CFPB
- "The principle of a level playing field is a sort of core bedrock principle on which the [CFBP] agency was founded. That applies with respect to depository and non-depository institutions, but it certainly should apply equally with respect to lenders who take different forms...a marketplace can't work, a competitive fair marketplace can't work if not everybody is governed by the same set of rules. So having consistent rules that all players have to abide by seems to me to be a sort of first principle of consumer protection."- David Silberman, CFPB Associate Director for Research, Markets, And Regulation
But its upcoming short-term lending rules are likely to regulate providers instead of credit products, subjecting nonbank lenders to arbitrary and complicated rules without requiring banks to follow similar regulations. For instance, a loan that is secured with a car title would be subject to CFPB rules, but credit obtained to buy a car would not. Similarly, a short-term loan from a nonbank lender would be subject to CFPB rules, but bank overdraft protection (also used as short-term loans) would not.
The CFPB's proposed rules pick winners in losers among financial services providers. To address abuse in overdraft protection programs, the CFPB recently encouraged banks and credit unions to offer deposit accounts that are designed to not authorize overdrafts and do not charge overdraft fees. Meanwhile, the proposed short-term lending rules will reduce the number of regulated payday loans by more than 70 percent, according to credit reporting agency Clarity Services. More importantly, they create a tangled web of federal regulation - pre-empting decades of state regulation - restricting consumers' ability to access short-term credit and driving them to more expensive and less regulated alternatives.
Lenders and borrowers alike will be left asking, Is my loan covered by the proposed CFPB rule?