From the start, the CFPB has made clear that its proposed payday lending regulation is meant to fundamentally alter the short-term lending industry by restricting access to credit for millions of Americans.
What officials have yet to answer, however, is how these new restrictions will affect states that already effectively regulate the industry.
Just this week, in a letter to Sen. David Vitter (R-LA) and Rep. Steve Chabot (R-OH), chairmen of the respective House and Senate committees on small business, seven small lenders chosen to review the CFPB’s regulatory framework outlined how the Bureau disregarded the work of state regulators to protect consumers and ensure access to credit.
“It was even more frustrating that bureau officials could not identify failings in the state regulatory framework that would prompt a federal overlay of new regulatory obligations, and that bureau officials admitted they had not even analyzed the existing state programs,” the lenders wrote.
States Voice Concern and Urge Collaborative Approach
Elected officials across the country also are voicing their strong concerns with the Bureau’s “one-size-fits-all” model. In a recent letter to Director Cordray, nearly 30 Republican and Democratic Representatives from Ohio, Florida, California, New York, Tennessee, Virginia, Texas, Arizona, North Carolina, South Carolina, Minnesota and Missouri cautioned against superseding state laws that already effectively regulate the industry.
“To date, several states have implemented regulatory regimes that have successfully enabled consumers to secure desperately needed short-term credit in a regulated environment that protects them from economic harm,” the letter said, adding, “We request that you conduct field trials in specific markets to gain a deeper understanding of how any proposed regulators will work in practice.”
As proposed, the regulations will preempt laws that have been crafted and debated over decades by local and state policymakers who know their constituents best.
States that have worked hard to develop laws and regulations that balance consumer protection with equitable access to credit will be undermined. Local regulators and policymakers, who have over their careers ensured that consumers have legitimate options to choose from, will be undermined. And consumers will suffer the consequences.
Proposed Rules Ignore Consumer Rationale
The CFPB’s proposal would also eliminate regulated lending options while overlooking illegal operators. In fact, the regulations as currently written would only serve to drive consumers to these scammers. As the lawmakers’ letter warns, “We are concerned that individuals who rely on the availability of short-term and small-dollar loans to make ends meet will be forced to turn to more experience alternatives potentially resulting in a phenomenon that is hardly the financial protection that the CFPB seeks to accomplish through this regulatory scheme.”
At its core, the proposed regulations are over-reaching test lab solutions dictated by federal bureaucrats who have never taken out a payday loan to consumers who responsibly use their service. These officials have neither attempted to study the actual effects on consumers who occasionally count on regulated payday loans nor examined the effectiveness of different state regulatory approaches.
Too often, people who have no need for payday loans lead the charge to eliminate them, while dismissing the rational actions of millions of Americans who value the service. As Rep. Brad Sherman (D-CA) succinctly stated, “So many of the people making the decisions do not ever need a payday loan… People are in the political world always have the $400 to pay their light bill.”