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An estimated 10-12 million customers in the United States use short-term loan products each year. These customers tend to be lower income, the type of people who often cannot afford bank accounts or other financial products offered by traditional financial institutions.
But short-term lenders are unpopular among big government leftists, so the Consumer Financial Protection Bureau (CFPB) has proposed new federal regulations that would virtually eliminate these loan providers. As for their customers, where will they go the next time they need an emergency short term loan if they face an expense they can’t immediately cover? Federal regulators apparently don’t care.
The 2008 financial crisis provided the excuse for Congress to create the CFPB, a long time pet project of big government leftists, despite the fact that the CFPB would have done nothing to prevent the financial crisis. The mission of the CFPB is to “protect” Americans from what federal regulators consider bad financial products, whether people want them to or not. The agency was created specifically to be even more unaccountable than the average bureaucracy, not answerable to the president or Congress, and handed a tilted playing field even in the courts. Not surprisingly, this unaccountable power has led to abuse after abuse. These new rules on short-term loans are just another entry on this roster of federal overreach.
Despite the propaganda coming from the big government left, these regulations are not designed to stop bad actors. Every state has regulators watching this industry and making sure that these valuable services are offered safely and ethically. Rather, these rules are designed to cripple an entire industry that the federal government has decided it doesn't like. These rules are designed to eliminate banking options for some Americans who have limited economic options to begin with.
There are numerous reasons to oppose these new regulations:
There is no reason for federal government action in this case. Short term loans are already regulated at the state level, indeed 18 states and the District of Columbia already effectively ban many of these loans. Other states choose to allow and regulate them. In states where these loans have been banned, there have been observed increases in: bounced checks, complaints about lenders and debt collectors, and chapter 7 bankruptcies.
There is no evidence that customers of short-term lenders are dissatisfied or feel somehow taken advantage of. According to the CFPB’s own data, short term lenders have accumulated about 14,000 complaints total in the last three years. This is from a customer base of 10-12 million per year. If this was some crisis crying out for federal intervention, wouldn’t you expect more concern from the people allegedly being taken advantage of?
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." The CFPB claims that short term lenders seek out customers who are unlikely to be willing to repay their loans, without noticing the blindingly obvious fallacy underlying that notion. If a business looks for customers that cannot pay, the business is not likely to last very long as they will never make any money.
Short term loans are cheaper than the alternatives for many low-income Americans. Banks charge fees for checking accounts with low balances making them unaffordable for those living paycheck to paycheck. And over draft fees on those accounts can reach astronomical annual interest percentages. These rules would leave low-income Americans with only even more expensive options for financial products. If expensive banks are not an alternative for lower income people, in the absence of these lenders, the former customers of short-term lenders will be forced to rely on illegal loan sharks. How is that an improvement for low-income Americans?
These regulations are a proposal in search of a problem. And as an exercise of federal power, they set a concerning precedent. In the world of the all-powerful administrative state in which we live, we have an agency in the CFPB which is not accountable to Congress, which does not control the agencies appointments or budget, or the public that is making rules designed to destroy a targeted industry. Today they may come for an unpopular industry like short-term lenders, but what stops them from coming for your business or job next?
The comment period on these proposed rules is open until October 7. Submit your comment to the CFPB today opposing these destructive regulations.