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Yesterday, the Consumer Financial Protection Bureau (CFPB) announced a proposed rule that would allow them to eliminate banking options for poor Americans. Did you miss that headline? Perhaps that’s because the Obama administration and its allies in the press described these new regulations as “cracking down on payday lenders.”
But this spin ignores a crucial detail: many poor Americans do not have and cannot afford traditional banking options such as checking and savings accounts because fees make these products prohibitively expensive for people with low incomes. Payday lenders often provide crucial basic banking services for these poor Americans. For people struggling to make ends meet, a short term loan may be the difference in being able to buy groceries or making a rent payment on time. They should have the freedom to contract and obtain the loans they believe they need, not be subject to the whims of regulators in Washington DC.
Now it is certainly the case that there are unscrupulous companies in the payday loan industry, as in any industry, but every state has regulators watching this industry and making sure that this valuable service is offered safely and ethically. As the Heritage Foundation’s Norbert Michel notes: “Not only does the CFPB lack evidence to support its claims that these lenders engage in ‘predatory behavior,’ the evidence actually suggests just the opposite." These new heavy-handed federal regulations are not meant to protect consumers: state regulators already do that. These rules are meant to eliminate payday lenders because they are disfavored by the left-wing federal administrative state.
In the world of the all-powerful administrative state in which we live, we have an agency in the CFPB which is unaccountable to Congress or the public. It can make rules designed to destroy a targeted industry. Today, they may come for an unpopular industry like payday lenders, but what can stop them from coming for your business or job next?
There is still a chance to stop these destructive and unnecessary regulations. These rules are still just in proposed status, which gives the public and affected companies and consumers the opportunity to comment and express their opposition. This comment period will last until September 14th, 2016. And given the destructive nature of the rules there will likely be court challenges. This rulemaking is yet another signpost on the road to regulatory tyranny and should be rejected.