By Tim Devaney - 04/08/14 06:00 PM EDT
Financial regulators came under fire from both House Republicans and Democrats on Tuesday for tightening lending standards for low-income borrowers, particularly with regard to payday loans.
The Consumer Financial Protection Bureau (CFPB) and Federal Deposit Insurance Corporation (FDIC) have set their sights on stopping predatory lenders from taking advantage of these low-income borrowers, some of whom are so desperate for cash they will agree to pay the high fees and interest rates of payday loans that can send them spiraling into debt.
But in trying to protect these low-income borrowers, the agencies have gone too far, cutting off their access to the short-term loans that help them pay their most immediate bills, such as rent or medical expenses, the lawmakers said during a House Financial Services Committee hearing.
“I don't think you want to be responsible for keeping that single mom with two kids, working two jobs from being able to get a car loan so she can get to and from work and take her kids to school,” Rep. Randy Neugebauer (R-Texas) said at the hearing.
“But, you see, that's what's going on,” he added.
The lawmakers criticized the two agencies for their involvement in the Justice Department's Operation Choke Point, which they said attempted to cut off payday lenders' access to traditional banking services, essentially forcing them out of business.
Rep. Blaine Luetkemeyer (R-Mo.) said the regulators were “completely out of line.”
“Operation Choke Point is a perfect example of regulatory stuff gone amuck,” Luetkemeyer said.
Even some Democrats chimed in. Rep. David Scott (D-Ga.) admitted Operation Choke Point “could go a little bit too far,” if not properly overseen.
While Rep. William Lacy Clay (D-Mo.) said he supports the agencies' efforts to weed out payday lenders that operate illegally, but he pointed out that the payday lenders that follow the law should not be punished.
“My constituents need basic services,” Clay said. “There are folks who need cash or checks to pay their bills.”
Michael Grimm (R-N.Y.) said regulators should not assume that all payday lenders are breaking the rules.
“If payday lending is going to be deemed illegal, Congress will say so,” Grimm said.
But last month Senate Democrats cheered efforts by the regulators to crack down on payday lenders. During a hearing, Sen. Sherrod Brown (D-Ohio) called for stronger regulations to protect borrowers from “predatory” practices.
“There are more payday lending stores in the United States than there are McDonald’s and Starbucks combined,” Brown said.