If regulations proposed by the Consumer Financial Protection Bureau (CFPB), a new federal agency created under Dodd-Frank, go into effect, consumer access to small-dollar loans could be eliminated. The regulations would place draconian restrictions on payday lenders that would eliminate the loans used often by low-income Americans to meet short-term financial needs. Richard Cordray, the Director of the CFPB, came under stringent questioning before the House Financial Services Committee today.
The hearing reveals a picture of a government agency out of control, that threatens to shut down the small-dollar lending industry, and in doing so eliminate a choice used by low-income Americans to meet their credit needs. The committee has concluded that, because of excessive regulations of the CFPB, that “big banks are bigger and the small banks are now fewer,” while also noting the regulations have, “eliminated competition, stifled innovation and given consumers fewer choices.”
Committee Chairman, Rep. Jeb Hensarling (R-TX) said about the CFPB, “Soon Director Cordray – one man neither elected nor accountable to either the President or Congress – will presume to decide for all low income Americans whether he will allow them to take out short-term, small-dollar loans. These are the very loans many need to keep their utilities from being cut off suddenly or keep their car on the road so they can in turn keep their jobs.”
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Hensarling also pointed out the reference from a Democrat witness that called the CFPB the “crown jewel” of the Dodd-Frank Act, stating “Herein lies the problem. In America, we don’t want crowns because we won’t want kings, including a king of consumer financial products.”
By regulating the small-dollar lending industry out of existence, the CFPB will eliminate an important credit option that is available for low-income Americans who don’t have access to traditional credit products offered by banks and credit unions. The small short term loans that payday lenders offer are not offered by other types of lenders. In Cordray’s state of Ohio alone, the proposed CFPB regulations will negatively impact tens of thousands of low-income consumers who will no longer have access to short-term loans to meet their credit needs.
“Freedom, opportunity and choice allow consumers to pursue their dreams and achieve financial independence,” Rep. Hensarling stated, “If Congress is to protect the fundamental rights and opportunities of all Americans, including low income Americans, then one essential step we must take is to reform the CFPB.”
Congress must act and reform the CFPB before it adversely affects more American consumers by regulating industries they rely on, out of business. The Director of CFPB, Richard Cordray, failed to recognize the problem his agency might cause and didn’t address questions about what options would be available for consumers should the small-dollar lending industry be eliminated by regulation. If the proposed CFPB regulations are implemented, millions of American consumers will have fewer credit options.
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