Payday Loan Regulations Exceed CFPB Mandate, Lawmakers Accuse

Controversy has surrounded the Consumer Financial Protection Bureau and its self-imposed mandate to regulate the payday loan industry and other financial services. Republican lawmakers have been among the most vocal critics of the agency since its creation was authorized by the Dodd-Frank Act. Supported by President Obama, most Democratic lawmakers and consumer-protection advocates, the CFPB’s mandate to reform financial services has fostered Republican distrust of the agency’s independence of the legislative branch of government.

In fact, members of the House Financial Services Committee have warned that CFPB regulations could undermine state laws that regulate the payday loan industry. By way of example, they’re concerned about how the CFPB may try to change things like Arizona payday loan laws. Republicans worry that the agency has too much power, insufficient checks and balances for its unilateral decisions and a demonstrated willingness to exceed its authority to set financial policies according to a report.

The committee’s chairman, Texas Representative Jeb Hensarling, warned, “Congress has made Mr. Cordray a dictator.” Currently, 38 states allow payday lending in some form, and the CFPB’s regulations usurp state authority that is expressly granted to the states to regulate commerce within their borders.

Republican Lawmakers Charge the Consumer Financial Protection Bureau with Exceeding Its Mandate

Congress granted sweeping powers to the CFPB to regulate the payday loan bad credit industry and other financial institutions. Critics suggest exceed what legislators intended when they passed the Dodd-Frank Act. The bureau has investigated discrimination in auto lending, targeted credit unions, implemented rules for debit cards and created a controversial consumer complaint hotline. A recent CFPB proposal would allow consumers to rate financial companies on a scale of 1 to 5 in surveys without any guidelines for the ratings.

Critics charge that these ratings are more likely to be negative because the pool of people who complete them are already dissatisfied according to a report posted at Trade groups, Republicans and some Democrats oppose the proposed surveys because biased complaints could skirt formal rules and legal processes and damage company reputations while leaving lenders no way to respond. Vicious attacks against businesses could be posted on official government websites without editing or censorship.

The CFPB’s Regulations Affect Payday Loans, Mortgages, Auto Loans and Other Financial Products

Payday loans aren’t the only service that’s fallen under the CFPB’s purview. The list of complaints about the CFPB includes the agency’s efforts to limit the use of mandatory arbitration clauses. Many providers of financial services–especially alternative financing–attempt to limit class-action lawsuits and legal costs with arbitration. Today’s crowded courtrooms and high costs of litigation make it more practical to handle many financial issues through arbitration instead of court-based litigation.

The report that influenced the CFPB’s position on arbitration was flawed according to Representative Bill Huizenga, a Michigan Republican: “The report was criticized by a number of academics and industry for completely ignoring major pieces of data.” More than 80 representatives requested that the CFPB reopen the study, which is clearly one of the checks and balances that usually get started to the legislative process, but Director Cordray commented, “We’re now moving ahead with Congress’s direction to engage in policy intervention based on that.”

Bad Credit Payday Loans Generate Little Effect on Consumer Finance

Bad credit payday loans, which serve as a political and media lightning rod, are just a minor blip in the loan industry. Credit cards, mortgage loans, auto loans and other financial services comprise a much larger part of the U.S. economy. The bureau’s policymaking efforts affect every kind of lending, and one person, the agency’s director, has unprecedented power to dictate policy. Even Democrats–who championed Dodd-Frank and the creation of the CFPB–oppose the bureau’s efforts to regulate auto lending, arbitration policy and bad credit payday loans.

Federal Court Rules that the CFPB’s Legal Structure Is Unconstitutional

Heated exchanges between CFPB director Richard Cordray and lawmakers illustrate the controversy and potential dangers of unchecked power. While Cordray points out that the CFPB has taken a measured approach to payday loans and achieved real consumer benefits, the agency’s opponents cry foul. Many lawmakers feel that the agency has too much power and usurps congressional oversight and the states’ authority to regulate financial institutions and the payday loan industry. The U.S. Court of Appeals apparently agrees because it recently ruled that the CFPB’s organizational structure was unconstitutional.

In October of 2016, the Court of Appeals chided the U.S. Congress for granting the CFPB unprecedented independence. Specifically, the ruling found that the CFPB can regulate virtually any aspect of consumer financial services like payday loans while the director remains immune to political disputes. The agency’s director enjoys a five-year term–which is longer than the term of the president who appoints the director–and can only be removed “for cause,” which includes “inefficiency, neglect of duty, or malfeasance.”

According to, agency critics contend that its organizational structure, which was designed to insulate the agency from politics, actually creates an unelected legislative body with more authority than either the legislative, judicial or executive branches of government. quoted a statement on the ruling from Rep. Jeb Hensarling (R-Texas), who chairs the House Financial Services Committee, “This is a good day for democracy, economic freedom, due process and the Constitution.” The court decision will likely be appealed to the Supreme Court, but that will probably take two years. However, President-elect Trump will likely appoint a Supreme Court Justice who will support the ruling and tip the balance between liberal and conservative jurists.

Online Payday Loans Face Opposition While Attracting Tacit Support

Despite industry critics and attempts to regulate the payday loan industry out of business, online payday loans remain popular options among consumers. Many states have passed their own legislation to curb industry excesses while tacitly supporting free enterprise and people’s rights to make their own financial decisions. These regulations often conflict with the CFPB’s unilateral approach to regulating financial services. CFPB Directory Cordray has glossed over this issue by affirming that “whatever we do in this area will coexist with state law.”

Even critics of the payday loan industry acknowledge that online payday loans remain popular with the consumers who depend on them for emergency cash needs. Many lawmakers consider CFPB regulations too heavy-handed, unilateral and out-of-step with prevailing trends. Industry supporters claim that bad credit payday loans provide a release valve for some consumers, and some critics accept that these loans provide a needed service until something better develops based on free market forces.

Consumer Groups, Democratic Lawmakers and the Outgoing Obama Administration Point to CFPB Accomplishments

The Obama Administration and Democratic lawmakers continue to express support for financial reform and the CFPB’s independence. According to, the CFPB was instrumental in unraveling the Wells Fargo scandal and forcing the company to refund unauthorized fees to thousands of bank customers. The website also offers free tools and resources for financial planning and has advocated for consumers in cases that resulted in $11.7 billion in relief.

Opposition to the CFPB and its policies was one of candidate Donald Trump’s major policy positions in the presidential campaign of 2016. Now that Trump and Republican lawmakers have taken the reins of all branches of government and the CFPB’s structure has been ruled unconstitutional, consumers can probably expect big changes in financial regulations. Find out more about the escalating political controversy that surrounds the CFPB at the