Congress Shamelessly Attempts to Deregulate Payday, Car-Title Loans

Courtesy of responsiblelending.org
Courtesy of responsiblelending.org

Since its inception, the Consumer Financial Protection Bureau (CFPB) has faced an unrelenting onslaught of attacks. From lawmakers, to lobbyists and business organizations, many maintain that the marketplace should regulate itself, and government should just get out of the way.

Count the chair of the House Financial Services Committee, Dallas’ Rep. Jeb Hensarling, as a key believer who is determined to roll back regulations and hamstring regulators, if not eliminate them.

On April 26, he convened a hearing to formally unveil legislation dubbed the Financial CHOICE Act 2.0. Participating in the session were expert witnesses, the majority of whom echoed Hensarling’s views.

This bill deserves a new name, so let’s call it something more akin to what it really would do: financial harm. For Rep. Maxine Waters, the committee’s ranking member, “the Wrong Choice Act” would be an apt and accurate description.

“I want to be very clear for anyone who is watching — that is exactly what this bill would result in,” the congresswoman during the hearing. “The ‘Wrong Choice Act’ thoroughly dismantles Wall Street reform, guts the Consumer Financial Protection Bureau, and takes us back to the system that allowed risky and predatory Wall Street practices and products to crash our economy.”

Without a doubt, the bill encourages government to take a blind eye to lenders that repeatedly harm borrowers by trapping them into turnstiles of debt and re-borrowing that eventually leads to overdrafts, closed bank accounts and in the worst scenarios, bankruptcies. Today, consumers in 35 states are subject to triple-digit interest rates that range from 154 percent to 677 percent.

If Hensarling has his way, Congress will enact a bill replete with provisions that would reverse forward strides in consumer protection, many taken in the wake of the Great Recession of 2008 and others with origins dating to the Great Depression of the 1930s.

While many state officials have taken on predatory lending in several of its abusive forms, the CFPB worked in concert. As states exercised their respective authorities, CFPB investigated and enforced legal provisions of a federal law that stops unfair, deceptive, and abusive acts and practices in financial services, or UDAAP. As a federal consumer agency, CFPB also secured nearly $12 billion on behalf of American families through its decisive actions and national scope.

The Financial CHOICE Act 2.0 would eliminate CFPB’s use of UDAAP. That one reversal would make it easier for payday lenders, banks, debt collectors, student lenders, and others to trick and trap consumers without redress.

In addition, by specifically removing authority to promulgate rules for high-cost payday and car-title loans, this harmful bill would also exempt further CFPB actions on high-cost installment loans too.

Even now, millions of Americans still feel caught in debt traps like payday and car-title loans with an average 300 percent rate. In states that allow these high-cost loans, payday and car title lenders strip away more than $8 billion a year.

According to CFPB, nearly one in four payday borrowers relies on either public assistance or retirement benefits as primary income. The average borrower income is approximately $25,000.

All too often across the country, payday and car-title storefronts ply their trade in black and Latino neighborhoods. The noticeable presence of these predatory lenders in our communities illustrates how our people are targeted to become financial victims, just as subprime mortgage lenders did in the years leading to the foreclosure crisis.

Before CFPB’s creation, millions of Americans felt caught in debt traps like payday and car-title loans with no hope of breaking its debt trap. Now, by fighting predatory lenders at both the state and federal levels, 90 million people who live in the District of Columbia and 15 states have laws that cap triple-digit loan shark interest rates on these small-dollar loans and a consumer agency that will hold violators accountable.

Collectively, these states save more than $2 billion a year that would otherwise be spent on payday-loan fees.

In many ways, Hensarling’s bill proposes that the consumer watchdog become a toothless tiger with no bite at all.

“A key goal of the proposal is to weaken the successful CFPB into an unrecognizable husk incapable of protecting consumers,” said Ed Mierzwinski, consumer program director with U.S. PIRG. “An important tool for regulators is the ability to challenge unfair and deceptive practices. The CFPB has been given a third prong, the ability to challenge ‘abusive’ practices as well.”

Diane Standaert, CRL executive vice president and director of state policy, said payday and car-title loans “often drain hundreds of dollars from a person’s bank account in amounts well above the original loan amount.”

“Instead of giving free rein to practices that intentionally push people deeper in debt, Congress should let the CFPB do its job to prevent these debt traps,” she said.

Charlene Crowell is the deputy communications director with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.