Congress tries to ban regulation of payday, car title loans

CHARLENE CROWELL | 5/8/2017, 10:52 a.m.
Since its inception, the Consumer Financial Protection Bureau has faced an unrelenting onslaught of attacks. From lawmakers to lobbyists and ...

Center for Responsible Lending

Since its inception, the Consumer Financial Protection Bureau has faced an unrelenting onslaught of attacks. From lawmakers to lobbyists and business organizations, many still 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 rollback 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; let’s call it something more akin to what it really would do: financial harm. For Congresswoman 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 said 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 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 annual rate. In states that allow these high-cost loans, payday and car title lenders strip away more than $8 billion dollars a year. According to CFPB, nearly 1 in 4 payday borrowers relies on either public assistance or retirement benefits as primary income. The average borrower income is approximately $25,000.