Breaking bad with the CFPB
5/5/2017, 9:23 p.m.
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, Congressman Jeb Hensarling of Dallas, as a key believer who is determined to roll back regulations, hamstring regulators and eliminate current rules.
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 Rep. Hensarling’s views.
This bill deserves a new name. Let’s call it something more akin to what it really would do — financial harm. Congresswoman Maxine Waters of California, the committee’s ranking member, said 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,” said Rep. Waters 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 turn 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 percent to 677 percent.
If Rep. Hensarling has his way, Congress will enact a bill replete with provisions that would reverse strides in consumer protection, many taken in the wake of the Great Recession of 2008 and others with origins dating to the Great Depression.
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 also would exempt further CFPB actions on high-cost installment loans.
Before CFPB’s creation, millions of Americans felt caught, with no hope of breaking debt traps. Now, 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 otherwise would be spent on payday loan fees.
In many ways, Rep. Hensarling’s bill proposes that the consumer watchdog become a toothless tiger with no bite at all.
“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, public interest research group. “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.”
“Payday and car title loans often drain hundreds of dollars from a person’s bank account in amounts well above the original loan amount,” noted Diane Standaert, director of state policy with the Center for Responsible Lending. “Instead of giving free rein to practices that intentionally push people deeper in debt, Congress should let the CFPB do its job to prevent these debt traps.”
The writer is deputy communications director with the Center for Responsible Lending.