The Washington Times recently published a series of articles highlighting the significant shortcomings and consequences of the Consumer Financial Protection Bureau’s (CFPB) awaited short-term lending rules. Throughout the series, state financial regulators, lenders and customers alike urge the CFPB to consider borrowers’ experiences and existing state lending regulations before imposing one-size-fits-all federal policies.
The series revealed growing consensus that the CFPB’s proposal is motivated not by data and research, as avowed by the Bureau, but by personal ideology and misperceptions of short-term lending. Of particular note, the Bureau has done little to understand the rationale, needs and interests of short-term borrowers, more than two-thirds of whom oppose further federal restrictions.
Brian Lynn, CEO of Speedy Cash and Lending Bear, believes the Bureau still has more listening and research to do. Lynn suggests that before any federal regulations are put into effect, an in-depth analysis of state regulations should be conducted:
“...a state-by-state analysis should be done, seeing where compromise has been made and what state laws are working. It just seems like the CFPB is using as a starting point the notion that payday lending is bad for everyone and then are working to create a framework around that preconceived conclusion.”
Drew Breakspear, the commissioner of Florida’s office of financial regulation, says the CFPB needs to closely examine effective state regulations, to use as the basis for federal regulations:
“If federal regulators must get involved, they should ‘take the Florida model and mandate it for the other 49 states. We have a very good model here, and it works. Because we’re on the ground, we’re in a much better position to regulate issues as they come up and take enforcement actions if people are doing something incorrectly.’”
Mr. Breakspear and members of Florida’s congressional delegation recently took their recommendation that the CFPB consider their state’s laws as the framework to Bureau director Richard Cordray, who flat-out rejected the idea. The Washington Times reported that, aside from this meeting, the CFPB hadn’t once consulted Florida’s leaders, despite their repeated outreach on this matter. Director Cordray’s reaction suggests that the CFPB is more interested in states that have effectively eliminated short-term lending, ignoring those—such as Florida—that have developed workable regulatory approaches that have successfully struck the balance between access to credit and critical consumer protections.
Should the CFPB continue to take aim at the short term lending industry, it could leave it with little left to regulate. Many lending operations would be forced to close, driving consumers into the arms of unregulated lenders. In the words of Ed D’Alessio, executive director for the Financial Services Center of America:
“We’re subject to state and federal laws that govern lending and will be subject to any rule-making the CFPB comes up with, but these illegal, offshore lenders operate with impunity...If you’re a good guy, you’re subject to all the rules, but if you’re illegal, the future is bright. They’ll get even more business—they have to be licking their chops.”
Such premonitions of greater consumer harm are not exactly what one would expect from the Consumer Financial Protection Bureau.