Cash Advance Industry May Find Relief Under New Administration
Once the Trump administration gets its hands on the Consumer Financial Protection Bureau, or CFPB, small-dollar lenders are sure to enjoy a lot less scrutiny. The cash advance industry may find relief under the new administration since Trump’s people are sure to overhaul the country’s consumer watchdog agencies.
A Business-Friendly Administration may Give the Cash Advance Industry a Regulatory Break
The lenders of cash advance loans are hopeful that the new administration will give them a regulatory break. Trump will surely be interested in watering down recent laws against financial institutions including the ones that issue online cash advances.
After its creation, the CFPB brought several financial institutions to task. Recently, the agency discovered that a number of Wells Fargo employees opened up two million unauthorized savings accounts and consumer credit cards to meet tough sales quotas. Reports of this misconduct caught the nation’s attention, so the public may not be too receptive to Trump’s administration curtailing the agency.
The Street reported that Trump and his transition team stated that they had plans to eliminate the Dodd-Frank law, but it remains unlikely that the new administration could get rid of the CFPB altogether. A more possible goal would be for Trump and his people to replace Richard Cordray, who is the agency’s director.
A recent federal appeals court ruling decided that the president should have the power to oversee, direct and fire the agency’s director if he or she chooses. The CFPB is appealing this decision.
An Idea by Democratic Senator Elizabeth Warren
The CFPB is the invention of Democratic Senator Elizabeth Warren. The bureau was created to take up the slack left behind by other banking regulatory bodies like the Office of the Comptroller of the Currency or OCC. Agencies like the OCC struggle because in most cases, they’re required to serve two masters. One is making sure that the banking industry is safe and sound. The other is ensuring that consumers receive fair treatment from traditional financial institutions and cash advance online loan lenders.
According to critics of the financial sector, unfair practices that occurred during the housing bubble and the structuring of cash advance loans proved that regulators were looking out more for the financial industry than they were for consumers.
Because these critics had a valid point, the CFPB was developed as a regulatory body that would put consumers first instead of financial institutions like cash advance lenders. To further its ability to act, the agency was also designed to be independent from industry pressure. The CFPB is not subject to Congress’s purse strings.
Is Crippling the CFPB a Priority for the Trump Administration?
According to the Los Angeles Times, Ed Mierzwinski, the consumer program director at the U.S. Public Interest Research Group, said, “Weakening the consumer-focused agency could be politically problematic for Trump.” The news source also reported that Bryan Sullivan, a chief financial officer of Orange County mortgage lender LoanDepot, said, “The Trump administration probably wouldn’t try to undo the bureau’s mortgage rules, which have been in effect for a few years already.”
Despite the comments from these industry insiders, there are reports that the Trump administration may be interested in replacing Cordray with Texas Republican Congressman Randy Neugebauer. In fact, the administration has interviewed Neugebauer as the possible CFPB chief. The Congressman has been a vocal critic of the bureau, referring to the bureau’s regulation efforts as the “paternalistic erosion of consumer product choices.”
Republican Jeb Hensarling is another lawmaker who is interested in decreasing regulations. He indicated that he intends to take steps to pass legislation that would roll back provisions that are a part of the Dodd-Frank Financial reform bill. He wants to get rid of the Volcker Rule, which prevents banks from taking certain risks with their money. Hensarling also wants to eliminate the Durbin Amendment that was included to limit fees on transactions made with debit cards.
Will Congress Turn the CFPB into a Commission?
Democrats recently blocked a move made against the CFPB by the Republican members of Congress, which was an attempt to replace the director of the bureau with a five-member team that would be subject to Congress’s appropriations process. Democrats who mounted major objections to this change may give in since a five-member commission would provide them with two directors who would likely push back against a chairperson put in place by Trump.
If Trump does attempt to replace Cordray with a different director, the move would likely result in a lengthy and pricey lawsuit. Cordray will surely fight back against the Trump administration’s efforts to replace him, making the lawsuit a waste of money and time as the director’s term expires in July of 2018. This means that cash advance lenders may not see a break for a while.
Curbing the CFPB Would Be a Welcome Relief to Cash Advance Online Lenders
Even if Cordray manages to keep his post, analysts predict that the Trump team will move to curb the agency, which would be a benefit to cash advance online lenders. Supervisory, regulatory action and enforcement are just a few areas that the administration would like to restrain.
The government agency has proposed a regulation that would require online cash advance lenders to confirm the income amount of their customers to ensure that they are able to repay cash advance loans. This regulation would make it tougher for people to roll loans over into new, pricier ones. The new administration could cancel this regulation, making it easier for people to roll their cash advances over. Trump’s team is also likely to turn a blind eye to the fees charged by financial institutions like Wells Fargo and the lenders of cash advance loans.
Tossing Consumer Protection Out the Window
The power put in place for agencies like the CFPB tends to fluctuate with the political party that holds the most power in Washington. Since the economy collapsed during the last 10 years and the Democrats were in control the majority of that time, steps were put in place to rein in what some thought were abusive practices that harmed consumers. Watchdogs report that many of these abusive practices were established by financial service providers such as online cash advance lenders.
According to USA Today, the Credit Card Accountability Responsibility and Disclosure Act banned a number of credit card issuer practices that many consumers deemed unfair. For instance, consumers reported that credit card companies were double-cycle billing, increasing interest rates without cause and charging random late fees.
When a Change of Guard Changes Everything
For months, cash advance loan lenders and traditional financial institutions have been making changes to stay in compliance with the CFPB’s list of regulatory proposals, but with Trump as president, these steps may not have been necessary. The cash advance industry is likely to find relief with the new administration at some point. To read more about the cash advance industry and the Trump administration, visit the Personal Money Store.