Big benefit for payday lending companies who charge obscene fees mostly in poor and minority areas of the country.
Which consumers is the CPB protecting?
Which consumers is the CPB protecting?
(1) It's the CFPB (Consumer Financial Protection Bureau), the headline provided a description not a name (titlecase makes this ambiguous, though the body provides the correct name.)
(2) It's not protecting anyone; the administration is hostile the CFPB mission. It is being neutralized from within.
As I understand it, the Obama-era CFPB rules for short-term loans basically decimate payday lending. For instance: most payday loans (85+%) are repaid, but most also require multiple sequential loans to do that. The Obama-CFPB rules set a low threshold on consecutive loans, eliminating the mechanism through which most borrowers financed them. The Trump-CFPB calculated that the Obama-CFPB rules would break something like 60% of all loans.
Meanwhile, there are fairly extensive state-level regulations surrounding payday loans: many states bar them altogether, while others set rate caps so low that they can't viably be offered. There's ample evidence that states are actively engaged in making decisions about how they want lending to work.
So the basic argument boils down to:
If you want to end all payday lending nationwide, even for states like Illinois that have decided they should be available, then Congress should pass a law that does that. What shouldn't happen is an obscure CFPB rulemaking process that monkeywrenches the industry without a vote.
I'm not a fan of payday loans and would support a congressperson who voted to ban them federally, but I understand the logic CFPB is using.
That's the basic argument in a particular branch Republican thought, against the entire system of regulatory power delegated by congress to federal regulatory agencies. It seems weird to state it unlabeled.
There's also a broad partisan split on the question of how much new authority the CFPB actually has for regulating non-banks. One view of the CFPB is that its regulatory authority (as opposed to its supervisory authority, which is expansive) is derived primarily from the previous agencies it consolidates, none of whom had a charter to end payday lending. So another way to look at this is, it's within CFPB's charter to use its authority to collect data unfavorable to payday lenders and then write a report about how terrible payday lending is, but it remained up to Congress to rely on that report to impose a federal ban on the practice.
The overarching point is that this isn't so much a distinct feature of Trumpian corruption, so much as simply a predictable consequence of Republicans controlling the executive branch.
It's not a fringe idea in itself but in the context it's a talking/advocacy point that is a foundational building block of something quite different. I wish I knew more about spotted owl or food labeling matters so I don't have to use such overwrought examples so excuse/bear with me:
'states rights' is in itself not a fringe idea but at the time it was deployed entirely to advocate against federal civil and voting rights legislation - that was the goal, rather than a desire to debate the nature of the federal structure of the United States. 'Patient safety' is similarly deployed with the goal of restricting reproductive rights.
'Congress should spell it out' is precisely in that vein - its goal is the structural defanging of the federal regulatory regime. To my mind, that's a fairly conventional, mainstream analysis rather than than some lefty fever dream of mine. In this particular case especially - I think (if I'm remembering this right) both houses of Congress took the matter under consideration and neither brought it to a vote.
More important to me, though, is that CFPB is essentially the DHS of finance (a Voltron agency that centralizes a bunch of random oversight authorities that already existed) and neither the CFPB's enacting legislation (in Dodd-Frank) nor any of the extent authorities CFPB draws on appear to give it the authority to effectively end payday lending.
I think it's fair game for the party that (1) controls the CFPB now and (2) was already and (often) in good faith opposed to regulatory-state-creep and (3) definitely opposed to the idea of a nationwide ban on payday lending given that this issue is already aggressively litigated in the states to then say "the previous CFPB was really reaching when they tried to quietly eradicate most payday lending, and now that we've taken over, we're not going to push the ball to the end zone on that attempt".
To me: a good reason not to vote for Republicans! But not a good example of how this administration is breaking norms or rules. And there are so many real examples of that!
I'm only really irritated by the argument that this policy change was brought about by payday lending lobbyists, as if mainstream Republican thought didn't already say "consumers should have the freedom to purchase financial services they think they need". It's not even hard to make that argument colorable: you have terrible credit, live paycheck-to-paycheck (like most Americans), have an unexpected expense, pay it, and a week later find out you're going to have your electricity turned off. Without payday loans, a lot of Americans in this (common) scenario are S.O.L. This is what Rayiner was saying when he said the old CFPB attempt was addressing the symptoms and not the problem.
I don't fully agree with this argument! But I can't easily shoot it down.
I don't think the specifics are some glaring example of trumpian norm-breaking or corruption or whatnot, either.
> The banking watchdog’s mission statement now lists its first order of business as hunting down “outdated, unnecessary, or unduly burdensome regulations.”
If people didn't want these loans, the companies would not exist. If the loans were capable of being serviced at a lower rate, then new companies would form to offer lower fees and charge less interest. The biggest blocker to the latter, ironically, is regulations that aim to prevent new payday loan companies from forming by requiring compliance with industry best practices.
This is a classic example of "regulation made the problem worse, let's add more regulation and see if that fixes it."
[1] https://files.consumerfinance.gov/f/documents/CFPB_Proposes_...
IRL, scummy behavior often gets you ahead of the honest competitors.
Careful, you can justify all sorts of scams this way. Just substitute any kind of illegal or misleading behavior. Eg., to take it to an extreme: If the people didn't want the Nigerian prince scam, they wouldn't keep it going!
I don't think this is a problem of regulation run amuck at all. It reminds me a lot of how games whose primary focus is gambling can and do extensively reach out to children in order to either earn money through advertising or by making kids into gambling consumers.
Consumers may demand it, but you have to look at what companies do to increase demand and keep repeat customers. You could argue that if people didn't want to play those games they wouldn't exist; I argue that companies create consumers through malicious policies and advertising.
OTOH in the payday office there were obvious addicts on benefits who were being skimmed every month and could never get ahead of their debt.
Does the need to protect vulnerable people who make bad choices outweigh my need for a high-risk emergency loan? It's not a straightforward ethical situation.
I'm not sure many such people exist. Surely the vast majority of payday loan companies' customers are not these kinds of people, but rather, people who are being taken advantage of.
... pretty brutal. From the CFPB[1], 82% of loans are renewals, and ~50% are longer cycles of debt. So, naively, of the 66% of people no longer eligible, one might expect 75% (50%/66%) of those to be stuck in a debt cycle and 25% (16%/66%) to no longer have access to credit.
[1] https://files.consumerfinance.gov/f/201403_cfpb_report_payda...
Those very same consumers. Large, established players do not want to even touch that customer base because it represents a high risk and a low payoff.
These are the only financial services these people have access to. Cutting that off is not a solution.
Encouraging competition and increasing the number of players will reduce the "obscene fees". People aren't stupid, they'll always pursue the lowest cost option.
A good article/video to listen about this topic:
https://reason.com/reasontv/2017/04/13/lisa-servon-banking-c...
The first thing that really struck me in the book is that there are more payday lenders and check cashers in the United States than McDonald's and Starbucks combined. Is that true?
How much more competition do you think there can be? And if "These are the only financial services these people have access to" and "fees are high because because it represents a high risk and a low payoff", why do you think the fees will be lower without regulation?
Quite a bit more, apparently. See the other comments here. There are startups trying to tackle the problem.
Regulation is not the answer. Competition is.
If you feel you can provide better service at a lower cost, the field is wide open.
It'd be easy to undercut the airlines by starting a company that eschews safety regulations.
It'd be easy to undercut the banks by starting a company that eschews financial regulations.
It'd be easy to undercut a doctor by offering services by unlicensed medical staff that don't follow medical guidelines.
There are lots of businesses that would be more affordable to the poor if they didn't have any regulation at all.
Reasonable regulation is not a bad thing, it ensures that consumers are getting what they paid for and that they aren't being exploited. Like, giving the customer a $500 loan at 300% interest that they may never be able to pay back so they end up in an endless cycle of debt.
If that's the percentage being charged and that's the best a person can do, that means that person has a very high chance of defaulting on the loan.
Which would explain why nobody else wants to lend to that person. With your regulations, that financial institution would not exist. You can't regulate people into losing money. They'll just shut down.
You've now deprived the person of a legal financial option of borrowing money. You think they won't borrow anyway? They will. From a loan shark. They'll go into the black market.
They'll end up paying more for that loan since the shark now needs to cover the legal risk involved and if they don't pay it back, they may end up with broken legs.
How is that better?
Or let them be served by an unregulated transportation providers "Well yeah, our buses aren't safe, some of our drivers have suspended licenses, but if they don't ride with us, they'll ride with someone worse".
Just because there are worse alternatives is no reason for the government to sanction exploitative businesses.
No, it can't. Because they can always walk into a hospital and receive treatment, even if they have no capacity to pay. A hospital may not refuse treatment.
> Or let them be served by an unregulated transportation providers
Like Uber?
Interestingly enough, if an unregulated method of transportation becomes popular enough, it gets regulated, not regulated out of existence.