WASHINGTON — A bipartisan group of House lawmakers sent a letter to the Consumer Financial Protection Bureau on Thursday expressing concern about the agency's proposal to rein in payday lending and other short-term credit, warning it could hamper credit availability.
"As the CFPB moves forward with the comment period, we relay our concerns that the rule, as currently constituted, has the potential to severely restrict access to credit that millions of Americans rely on," said the letter, which was signed by six Democrats and six Republicans.
The lawmakers also said the rule would violate the CFPB's congressional mandate of "ensuring that all consumers have access to markets."
Estimates vary, but the CFPB's proposal is expected to significantly reduce the market for payday loans. Consumer advocates say the high-cost, short-term loans create a debt trap for vulnerable consumers who struggle to pay off the loans and end up paying more in interest than they borrow.
However, others argue that payday loans often serve as a credit lifeline for people with emergency expenses and warn that the plan could wipe out the industry, forcing consumers to turn to the black market for credit needs.
"With a decimated short-term, small-dollar lending industry, and other financial service providers not able to fill the void, millions of working class Americans will be left with no viable alternative to access the credit they occasionally need to make ends meet," the letter said. "The adverse effects of this proposal on consumers will be devastating."
The letter comes after more than one hundred House Democrats sent a letter to CFPB Director Richard Corday on Wednesday commending the bureau's work on the proposal. They also added that the plan should be tougher by including an ability-to-repay test for all small-dollar loans. The June proposal would create an exception to the ability-to-repay test for loans of $500 or less as long as they followed certain guidelines.
The letter from the twelve lawmakers was signed by Reps. Alcee Hastings, D-Fla.; Henry Cuellar, D-Texas; Bennie Thompson, D-Mich.; Collin Peterson, D-Minn.; Kyrsten Sinema, D-Ariz.; Brad Ashford, D-Neb.; Blaine Luekemeyer, R-Mo.; Steve Stivers, R-Ohio; Mick Mulvaney, R-S.C.; Patrick McHenry, R-N.C.; Andy Barr, R-Ky.; and Ann Wagner, R-Mo.
The deadline to submit comment letters on the CFPB's proposal is Oct. 7.