In the wake of the Great Recession, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which resulted in the formation of the Consumer Financial Protection Bureau (CFPB) — a so-called independent agency intended to help “oversee” the nation’s financial services industry.
But just as there was once an urgency for government oversight, there is now a growing alarm about an agency that respects no limits on its powers and which threaten to put many Main Street financial institutions out of business, with no proven benefit to consumers.
In particular, the CFPB has set its sights on the small dollar lending industry, which services more than 15 million American households each year with accessible, short-term loans, by proposing regulations aimed at curtailing this critical form of credit. All indications suggest that a rule proposed last year to address payday, vehicle title and certain high-cost installment loans is forthcoming — despite its near-certain devastating impact on small businesses and consumers.
After the 2008 financial meltdown, there was certainly room for additional scrutiny of our financial institutions; but the small dollar lending industry was in no way related to or responsible for the financial crisis. In fact, the CFPB’s attack represents federal government overreach at its worst.
The agency claims it is protecting against “predatory lending,” but the reality is this: Through the proposed small-dollar loan rule, the CFPB will limit or eliminate access to credit for a large number of consumers who can’t take advantage of traditional banking opportunities, hurting the very people who need help the most. What’s more, by taking away access to small dollar loans, many Americans will be left with no choice but the unregulated, underground marketplace.
It isn’t just the industry that says so. In its own initial analysis of the proposal, the CFPB boasted that it would eliminate up to 75 percent of this industry. Those findings were confirmed when the CFPB conducted a Small Business Regulatory Enforcement Fairness Act (SBREFA) panel to determine the impact the regulations would have on small businesses.
A study conducted by Deloitte Financial Advisory Services, as part of the SBREFA process, revealed that of the 170 member locations surveyed, only 14 percent would remain profitable if the rule were to go into effect. Ultimately, all of the employees working in these stores would be at risk of losing their jobs. Small business representatives presented similar compelling reports of harm.
In the public comment period, well over one million consumers, joined by academics, state lawmakers and attorneys general, bankers and credit unions also opposed the proposed rule. Nevertheless, the CFPB remains bent on issuing these regulations unchanged.
This go-it-alone strategy by the CFPB hasn’t gone unnoticed. During the comment process, the Obama administration’s own Small Business Administration Office of Advocacy conducted a review of the rule, finding it would “force legitimate businesses to cease operation” and asked the CFPB to reconsider.
In a recent letter to Director Richard Cordray, the Senate Committee on Small Business and Entrepreneurship, citing a 2016 Government Accountability Office report which questioned the CFPB’s “disregard” for the impact of other rules on small businesses, requested an immediate 90-day delay in the promulgation of the rule so that the CFPB could reconduct the SBREFA process and come up with an alternative.
Similarly, the House Small Business Committee Chair Rep. Steve Chabot (R-Ohio) sent a letter to Director Cordray requesting a briefing on how the agency had conducted its review of the impact of the proposed rules on small businesses operating in this market. The CFPB has yet to respond to any of these requests.
While the CFPB claims its rule is necessary to protect consumers, this is simply not the case. The CFPB — purportedly a “data driven” agency — has proposed a rule on faulty statistics, ignored the data showing the likely impact on small business and discounted reams of research establishing the benefits of making regulated credit products available.
Further, the financial service industry is already a highly-regulated marketplace. Every state in the country regulates short-term lenders, and there are more than 12 different federal laws regulating these financial products. Add to this industry self-regulation and consumers’ own good judgment, and it’s clear the CFPB’s rule is a duplicative, overly burdensome jobs-killer.
With so much evidence revealing the detrimental effects of this proposed rule, it’s becoming clear that Director Cordray is motivated not by a desire to protect consumers, but by his own political agenda. Earlier this week, Director Cordray announced his arbitration rule, leaving the small dollar loan rule as his final, uncompleted piece of business before stepping down and, as is rumored, running for governor of Ohio.
The conduct of the CFPB illustrates how unchecked power and disregard for the rule of law will lead to the destruction of regulated businesses and tens of thousands of jobs purely for political reasons. Draining the swamp and restoring constitutionally-limited government starts by calling out when bad politics trump good policy and reigning in the “rogue agency” that is the CFPB.
Edward D’Alessio is Executive Director the Financial Service Centers of America, which represents neighborhood financial service outlets in the United States.
The views expressed by contributors are their own and not the views of the Hill.