Rules Curbing Cash Advance Loans in Republican Crosshairs
Sweeping reform in the direction and tone of congressional legislation is increasingly likely under unified Republican control of the executive and legislative branches of government, and one of the biggest items on the conservative agenda is replacing Dodd-Frank and the CFPB’s regulations of cash advance loans and other financial products. Rep. Jeb Hensarling, who chairs the House Financial Services Committee, recently outlined his priorities for the 2017 Congress in a report posted at WSJ.com, which is better known as The Wall Street Journal.
Republicans want to scrap rules that were generated by the Consumer Financial Protection Bureau, or CFPB. The agency, which was created by the Dodd-Frank Act to implement financial reform in the wake of the mortgage crisis of 2008, has rankled Republicans because they feel it usurps the legislative authority of Congress, exceeds its mandate and operates without any of the traditional checks and balances of good government.
Hensarling has led the House of Representatives in past efforts to curb, derail and replace the controversial agency that has targeted cash advance loans and other financial services. Hensarling’s efforts include the following initiatives:
- Attempts to overhaul the Dodd-frank Act of 2010
- Support for various measures such as The Financial Choice Act
- Calls for stripping the Financial Stability Oversight Council of the ability to designate certain institutions as critical to the economy
- Opposition to Labor Department regulations that control how brokers sell retirement benefits
Online Cash Advance Regulations Could Soon Evaporate Under Republican CFPB Opposition
Hensarling’s efforts have received new life after the presidential election of 2016 when Republicans took control of both houses of Congress and the presidency. President-elect Trump and other Republicans have long opposed online cash advance regulations and other guidelines proposed by the CFPB, which they consider to be unilateral decisions by unelected and unaccountable officials. Hensarling’s committee generally supports free enterprise and the market’s ability to correct itself, and the committee passed legislation in 2013 to close Fannie and Freddie Mae, which Republicans view as failed mortgage-guarantee programs. The measure failed to pass the full House vote, but many controversial votes may be revived under President Trump.
Understanding the Controversy Over Cash Advance Loans and Financial Regulations
The payday loan industry, which emerged in the 1990s after deregulation, offers short-term storefront and cash advance online loans. These loans usually last only about two weeks, and borrowers repay the full amount from their next paychecks. Unfortunately, higher interest rates are usually necessary to cover the lenders’ fixed operating costs. The loans only earn small amounts of money during that time, so lenders have to charge higher interest rates to earn a profit. The costs of the loans are increased by high default rates because most applicants are automatically approved without offering any collateral.
Industry critics point out that many borrowers get caught in cycles of debt because they can’t afford to repay their loans and often take out additional loans. The high rates of interest become burdensome for long-term financing, and critics have demanded reform of the industry. During the mortgage crisis of 2008, these loans skyrocketed in popularity. When Democrats took charge of the Senate and presidency, they passed the Dodd-Frank Act of 2010 to regulate financial institutions and curb what they saw as abuses of the mortgage and cash advance loan industries.
Republicans and conservatives charge that the CFPB and Dodd-Frank went too far and began regulating financial industries outside their legislative mandate. The Dodd-Frank Act invested power in an organization that lacks sufficient oversight and control. Now that Republicans are returning to power, they want to scuttle Dodd-Frank and the CFPB while letting consumers and market forces regulate financial services through competition. Many Republicans also support the online cash advance industry, which has invested millions to support candidates who support curbing Dodd-Frank and excessive financial regulations.
Opposition to Cash Advance Online Loans Continues to Enjoy the Support of Many Democrats and Consumer Groups
In politics, nothing’s ever a done deal, and many Democrats and consumer groups are uniting in their opposition to cash advance online loans and rollbacks of CFPB regulations. Democrats returned Nancy Pelosi (D-Calif.) and her top supporters to power in the Senate, and Sen. Elizabeth Warren (D-Mass.) is quoted as being irate over Republican intentions. According to Commondreasms.org, Warren has responded that Trump lacks a mandate for reform. Trump failed to win the popular vote, and Warren characterizes his presidential victory as “historically small.”
Warren championed the Dodd-Frank and the CFPB and has consistently opposed the online cash advance industry. Warren opposes H.R. 6392, the Systemic Risk Designation Improvement Act, which would lift regulatory supervision of 30 of the nation’s biggest banks. The senator tweeted, “HR 6392 would take power away from independent regulators & give it to @realDonaldTrump’s choice for Treasury Secretary, Steve Mnuchin.”
Warren leads the coalition of Democrats and activists who oppose cash advance online loans and other high-interest loan products. However, not all Democrats support regulating these lenders out of business because they remain popular with the people who use them. Responsiblebusinesslending.org and many other consumer-protection groups oppose regulatory rollbacks and support regulating the online cash advance industry, banks and other financial services even more closely.
Cash Advance Loan Products Remain Popular with Borrowers
Despite the political infighting, cash advance loan products remain popular with those people who use them. People with low income, poor credit or few financial resources often turn to a cash advance loan when their cash on hand won’t cover expenses. Even people with professional-level incomes often take out a cash advance loan when an emergency situation arises. An astonishing range of politicians and stakeholders with a vested interest in cash advance loans welcomes news of the Republican-led rollback of Dodd-Frank regulations including members of the banking industry and credit union officials.
Industry groups that are joining Republicans in the effort to roll-back regulations of cash advance loans include the Credit Union National Association. According to a report posted at Morningconsult.com, this coalition has sent out requests to federal agencies to suspend their rule-making processes in light of the 2016 elections.
Predicting politics and elections has proven difficult in the past year with upset wins for the United Kingdom’s referendum to leave the European Union and a presidential election where pundits predicted a Democratic landslide of historic proportions just one week before Republican Donald Trump won the election. The only sure thing is that cash advance loans will continue to generate controversial opinions. Find out more about the proposed Republican regulatory rollback at the Personal Money Store.