Since its inception, the Consumer Financial Protection Bureau (CFPB) 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’ U.S. 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.
This bill deserves a new name; let’s call it something more akin to what it really would do: financial harm. For U.S. Rep. Maxine Waters, the committee’s ranking member, “the Wrong Choice Act” would be an apt and accurate description.
“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,” Waters said during the hearing.
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.
While many state officials have taken on predatory lending, 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 a 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. 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.
In states like Missouri that allow these high-cost loans, payday and car title lenders strip away more than $8 billion dollars 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.
Payday and car-title storefronts tend to 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 up to the foreclosure crisis.
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.
“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.”
Charlene Crowell is the deputy communications director with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.
