In case Washington, D.C had a list of “most wanted” unaccountable government organizations, the CFPB (Consumer Financial Protection Bureau) would definitely be the number one enemy of the public. This is because since the inception of CFPB in 2010, the agency has issued over $5 billion in penalties and it has been punishing financial institutions and other enterprises under the disguise of ‘consumer protection’. The agency collected $525 million in civil penalties in 2016 alone and this amount has helped them fund their 1,648 employees and also operate on a budget of nearly $650 million. Even the credit unions saw a regulatory hit of $7 billion in just one year including the lost revenue. The most targeted among them all is the payday loan industry.
In a fresh attack against the payday lenders, the CFPB now wants them to verify the credentials of the borrower, such as the borrower’s major financial obligations, income and history of borrowing before issuing any loan. The CFPB has also issued a really long list of “affordability criteria” to complicate and lengthen the process of lending.
The current financial regulations that are governing short-term loans already make sure that the customers are aware of the terms and fees of their agreement while ensuring that the transaction process remains prompt and transparent. But, the recent mandates provided by CFPB jeopardizes payday transactions by burdening the lenders with unnecessary high standards and also eliminating the reason for which such loans are chosen over traditional loans in the first place. These mandates leave low-income Americans with very less hope of getting a line of credit.
CFPB has been putting a lot of pressure on the payday lenders while all along keeping its operations outside of the congressional oversight. The CFPB gets annual funding as a fixed percentage of the annual budget of the Federal Reserve. This keeps the elected officials away from the process of appropriations. Also, Director Richard Cordray can be fired only by the president and for a just cause.
Luckily, a positive change is on its way. Recently, the House Financial Services Committee passed the Financial CHOICE Act by a vote of 34-26. This is the first step towards making CFPB accountable. The bill is going to allow Congress to take on a much greater role in overseeing the organization by doing away with independent funding from the Federal Reserve. Following the passing of the bill, the Congress will be setting a fixed budget for the agency every year. The elected officials will be able to gain the authority to review the CFPB’s proposed financial rules. This will allow the Congress to nullify any rule or regulation that might seem too much of an imposition on the employers, as well as, the consumers. Under the proposal, both the houses of Congress will be required to give approval on a financial rule within sixty days before the regulation goes into effect.
The American Bankers Association says that the bill is going to bring some much needed clarity to the operations and mission of the agency. The chairman of the House of Financial Services Committee and author of the bill, Rep. Jeb Hensarling (R-TX), said that the Financial CHOICE Act is all about balances and checks.
Hensarling is right. The bill would not eliminate protection of consumers from the list of responsibilities of Washington, D.C. It will only provide the rogue agency with a little more oversight.
As for the payday loan industry, the proposal offered by Rep. Hensarling is going to prevent CFPB from issuing paralyzing mandates to govern the process of payday lending. This is going to make it easier for low-income Americans to shop around for prospective life-changing loans. This will also be safeguarding the lender-borrower relationship from overreach of the government. The Financial CHOICE Act was seriously long overdue.