Cash Advance Loan Industry May Benefit Under Trump Administration
The Consumer Financial Protection Bureau, the agency created after the financial meltdown of 2008, has taken aim at the cash advance loan industry almost since the agency opened its doors. The CFPB’s latest attack is in the form of proposed rules that many people believe would “regulate cash advance loans out of existence.” The proposed rules would apply to every lender whether they offer a cash advance online or operate a brick-and-mortar store. Throughout his campaign, Donald Trump repeatedly expressed his antipathy for the CFPB and the law that created the agency, the Dodd-Frank Act. Now that Trump has won the presidential election, many people are wondering whether the cash advance loan industry might benefit under his administration.
Will the Trump Administration Help the Beleaguered Cash Advance Loan Industry?
Dismantling an independent federal agency is no easy task. Trump would need support in both the Senate and the House of Representatives, and although Republicans control both, Trump would likely need to win support from at least eight Democrats in the Senate to see Dodd-Frank repealed. While he has a powerful ally in Rep. Jeb Hensarling, Hensarling’s focus is primarily on the parts of the Dodd-Frank Act that restrict banks’ trading activities and subject banks to liquidity and capital requirements.
Even if Trump cannot help lenders who offer cash advances by repealing Dodd-Frank, however, he may be able to assist the industry by focusing on the CFPB. For one thing, an appeals court recently ruled that the director of the CFPB is subject to the oversight and direction of the President of the United States, who can fire the director for any reason at all. Prior to the ruling, the director could only be removed for dereliction of duty or other serious cause, and the director operated without presidential oversight or direction. Should Trump be so inclined, he could fire the current director immediately and nominate a replacement who would be more agreeable to killing the pending regulations. In the unlikely event that the CFPB rules are finalized before Trump takes office, he could simply instruct the new director to issue revised regulations that effectively undo the controversial rules.
Why Lenders Offering Online Cash Advance Loans as Well as Traditional Lenders Object to the New Regulations
The primary reason that every lender offering cash advances online or through storefronts objects to the pending rules is that they believe the regulations will force them out of business. Those fears are echoed by many in the mainstream media. For example, an article appearing on TheHill.com cites one study that found revenues would decrease an average of 82 percent for small lenders and a second study that indicated that lenders overall would lose up to 70 percent of their business. Even the CFPB predicts that these types of loans will decline by at least 60 percent under the new regulations.
Additional support for the cash advance industry’s claims that regulations would seriously impact their business can be found in the results of a study appearing in the Fordham Journal of Corporate & Financial Law. The researcher cites a study conducted by two employees of the Federal Deposit Insurance Corporation that found that lenders offering cash advance loans had much higher default rates that required them to absorb a loss than the rates at mainstream financial institutions. The difference in profitability between lenders operating cash advance loan stores and traditional financial institutions was also affected by the need for cash advance lenders to maintain longer hours than their mainstream counterparts. People seeking these loans want the process to be convenient, but lenders are paying for the convenience in the form of payroll as well as utilities.
Pending Regulations Would Reduce Lenders’ Profits Substantially
Given the fact that lenders providing traditional cash advances as well as online cash advance loans are not turning an excessive profit, any regulations that increase their expenses can force them out of business. The new, stringent underwriting rules alone could make cash advance online loans as well as storefront loans too costly to offer. The Consumer Bankers Association — a group comprised of banks, not cash advance lenders — was quoted in the Los Angeles Times as stating that the regulations proposed by the CFPB are as “rigorous and comprehensive” for a $500 cash advance loan as for a $500,000 mortgage. In addition to making the process more expensive, the new regulations would increase the time it takes for a borrower to receive his loan, eliminating one of the most important reasons that many borrowers seek cash advance loans — quick access to cash.
Will Trump’s Administration Actually Benefit Lenders Offering Cash Advance Loans?
Trump’s campaign platform included numerous statements indicating that he is opposed to excessive regulations imposed by the government that hamper economic growth. When he listed his agenda for his first 100 days in office, Trump included a moratorium on new regulations as one of his goals and indicated that proposed regulations should be included in the moratorium as well.
A week after the election, Skadden, Arps, Slate, Meagher & Flom LLP posted its analysis of the regulatory environment under Trump’s administration. The analysis included a prediction that Trump would seek additional deregulation of the financial industry. It also stated that it was likely that Trump will at least scale back the CFPB’s authority to enforce the “abusive practices” standard that has been a keystone of its attacks on lenders offering online cash advances or similar products through physical stores. The administration will also probably seek to replace the CFPB’s single-director model with a bipartisan board.
Whether Trump’s administration will be a boon to cash advance lenders remains to be seen. However, during his campaign speeches, Trump made his position on several topics abundantly clear.
• He is far from a fan of government interference when it comes to business.
• He considers the Dodd-Frank Act an extremely “negative force” and has stated that he wants to dismantle almost all of the provisions contained in the law.
• He feels that the CFPB is “out of control” and has been overstepping its authority in many instances.
Given his previous statements, it would appear that Trump would abolish the Dodd-Frank and the CFPB immediately if such actions were within his power. Since he must deal with the legal constraints placed on him by the U.S. Constitution, however, he must work within the system to accomplish his goals. Whether he can garner the support needed to achieve the sweeping reforms he envisions remains to be seen. However, it appears that Trump may provide some assistance to the industry — and it is hard to imagine that he could damage it any more than the CFPB has already managed to do.
Is a Cash Advance Loan the Right Choice for You?
Cash advance loans can be a much-needed lifeline when facing a financial emergency. Like all credit products, however, you should learn all you can before making a commitment. If you would like to explore the topic of cash advances in greater detail, you can find many helpful articles at the Personal Money Store.