A recent piece in BankThink by Ken Rees endorsing the Consumer Financial Protection Bureau’s short-term lending rule calls for it to be issued without any further delay. But Rees incorrectly leads readers to believe that the CFPB is contemplating a modest set of changes designed to enhance competition and improve consumer protection, and that payday lenders want to thwart these regulations through delay. This is simply not the case.
The truth is the CFPB has quickly moved to a regulatory solution that creates more problems than it solves. As was shown through a mandated review of the pending proposal by a small-business advisory panel – convened by the bureau – an estimated 80% of small and medium-size lenders subject to the envisioned regulation could be driven from the market. Competition and innovation would be greatly diminished.
Rees passes over the many questionable features of the CFPB’s approach: using an ability-to-repay standard that exists in no form within a real-world model; adopting an arbitrary 60-day cooling off period between loans for a borrower; establishing a limit on the number of loans for an individual that is both arbitrary and devoid of consideration of the consumers’ needs; and ignoring the availability of many alternative, effective reforms that better serve consumers and operators.
The changes imposed by the looming CFPB proposal would force many operators to shut down, leaving consumers scrambling for other forms of credit that are not readily available. For those left searching for alternatives, Rees provides a very limited solution that would only benefit the least risky of borrowers. Such selectivity would not begin to serve the needs of the 19 million households that currently use short-term credit.
Rees’ insistence that the rule should be published now overlooks the fact that a rushed issuance of the rule would short-circuit the much-needed debate about the rule’s consequences. Those consequences include the loss of tens of thousands of jobs and the confusion and frustration that will be felt by consumers who need these products.
The CFSA has long advocated for a thoughtful and deliberate approach to the bureau’s rulemaking. We do not seek to forestall regulation but to make sure it is done correctly. The CFPB should take the time necessary to fully consider the real-life consequences of its rulemaking.
Dennis Shaul is the chief executive of the Community Financial Services Association of America, which represents nonbank lenders. He previously served as a senior adviser to former Rep. Barney Frank and as a professional staff member of the House Financial Services Committee.