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Freedom Fridays

October 13, 2017 – Removing Bureaucrats From Your Financial Decisions

Preventing Implementation of CFPB’s Short-Term Lending Rules

 

Freedom Fridays

 

What does this regulation do?

Last week, the Consumer Financial Protection Bureau (CFPB) issued new regulations on the short-term lending industry. These measures will limit how much customers are able to take out in short-term loans, as well as require lenders to try to assess whether a potential borrower has the financial means to afford such a loan in the first place.

 

Why is this a problem?

At first glance, the new CFPB regulations seem benevolent. After all, many lenders offer loans at interest rates higher than those of traditional banks, and it is not uncommon to hear tragic stories on the news about a down-on-his luck borrower who takes out a loan that he is subsequently unable to repay, thereby locking himself into a cycle of further and further debt.

What often fails to get reported, however, is that for every truly unfortunate case there are countless others in which a customer who faces an unexpected financial hurdle takes out a short-term loan, successfully meets the terms of the arrangement, and goes on with the rest of his life. In many parts of the country, banking services are scarce, and short-term lenders are one of the few resources that consumers have for meeting their financial needs. Yes, the interest rates offered by these institutions can be high, but so are the potential risks to the lender. We should be prioritizing consumer choice and responsibility, rather than imposing new regulations that could force hundreds of lenders across the country to close up shop.

Additionally, I have grave concerns about where these new regulations are coming from. It should be legislators at both the federal and state level making the decisions about what is and is not appropriate in the financial services industry—not the unelected and unaccountable bureaucrats at the CFPB. In 2008, Arizona enacted punishing restrictions on the short-term lending industry that drove many of these businesses out of the state. I strongly opposed this effort, but at least it was made by legislators answerable to the voter on Election Day.

 

What am I doing about it?

I recently voted in support of a financial services appropriations bill that contained provisions to prevent implementation of the CFPB’s short-term lending regulations and to subject that agency to much greater congressional oversight. That legislation passed the House of Representatives and is currently awaiting further action in the Senate.

 

I am also a cosponsor of a bill to fully eliminate the CFPB. Since its creation in 2011, the bureau has continued to grow in power without any accountability to Congress and the American people. Rather than allow them to continue burdening the our economy with harmful regulations, we should eliminate the bureau and return their authority over the financial industry to Congress.

 

What are they saying?

“The CFPB’s final rule will devastate an industry that serves over 30 million American customers each year. It will force the doors to close on hundreds of store fronts across the country, threatening 60,000 jobs and creating ‘credit deserts’ for many Americans who do not have access to traditional banking. The financial service center industry completes more than 350 million small-dollar transactions each year, which are often a lifeline for our customers.” - Ed D’Alessio, Executive Director, FiSCA

“This regulation may seem well-intended, but the impact of the rule will be devastating. The CFPB’s own impact analysis found that the rule would reduce industry revenue by approximately 75 percent. This is in essence a death warrant to at least three-quarters of the 20,000 payday loan shops that service some 12 million Americans annually. Eliminating the already limited choices of vulnerable consumers will do more harm than good.” - Daniel Press, Competitive Enterprise Institute