Payday Loans: Targeted by the CFPB and Demonized by Clinton
A new study released by the Consumer Financial Protection Bureau, or CFPB, targets the beleaguered payday loans industry with yet another charge of malfeasance. Apparently, these lenders are trying too hard to collect their legal debts from borrowers. JDSupra.com reveals that the report, which was published before the CFPB released its long-awaited guidelines on June 2, 2016, found that half of online payday loan borrowers were charged an average of $185 in bank-related penalties when multiple check presentations were made for payment after the first check deposit bounced.
The study went on to rail against the practice of presenting electronic requests for funds multiple times in one day. However, since most of these small dollar loans were payday loans, it makes perfect sense to try to get the money on payday. The June 2nd CFPB guidelines already proposed a rule to ensure that borrowers could afford to repay their payday loans, so there’s little reason to further complicate the industry’s legal prerogative to cash repayment checks or pursue payment with aggressive but legal collection practices.
There’s no guarantee that people will repay their quick loans for bad credit and nothing to prevent borrowers from withdrawing their funds before any electronic checks can be presented for payment. It’s common practice for all kinds of creditors to present bounced checks multiple times for payment, which causes thoughtful people to wonder where are the studies that analyze landlords, restaurants, car dealerships, utility companies and other merchants that also follow the same practices to collect the money that they’re legally entitled to collect.
CFPB Singles out Payday Lenders for Common Creditor Practices
Although there is some truth that consumers suffer from repeated creditor attempts to get their legally authorized money from bank accounts, the blame for these exorbitant bank charges must be shared by the consumers themselves and the banking industry. After all, the banks are the ones that receive these overdraft penalties and not the lenders or other merchants that are merely trying to collect their money. Bounced checks for rent, utility payments, mortgages, credit card installments and car payments are just as common as those for payday loans, but government agencies seldom attack local landlords for trying to collect their rents.
Banks charge multiple overdraft fees for relatively inexpensive-to-process electronic transactions. In fact, a report from The New York Times at NYTimes.com assigns the blame and profiteering on overdraft fees squarely on the banking industry. Banks rely heavily on overdraft fees, and the biggest consumer banks collected around $11 billion in 2015. Hidden banking costs often include transaction fees, check-cashing fees, overdraft penalties, late fees on lines of credit and many other surcharges that average consumers don’t expect and can’t afford. At one point, banks even collected overdraft fees when customers tried to overdraw from their debit or credit cards until Congress outlawed the practice.
The Usual Suspects Misinterpret Data Against Payday Lenders for Political Gain
It’s hardly surprising that Democratic Party nominee Hillary Clinton and her short-list of vice-presidential aspirants quickly attempted to turn the CFPB’s charges against the payday lending industry to political advantage. According to an article posted on Law360.com, Clinton commented, “abusive payday lenders have for too long been a drain on the resources of families in need.” Senator Elizabeth Warren, D-Mass, a leading vice-presidential contender for the Clinton ticket and leader in the fight against payday loan companies, tweeted in her favorite, soundbite-friendly Twitter forum that the CFPB “took a big step to protect consumers from predatory payday loans.”
Many Stakeholders in Finance and Politics Oppose the CFPB and Support Payday Loans
There’s a groundswell of anti-CFPB sentiment, and an article posted on Americanbanker.com mentioned a group called the American Action Network that opposed the CFPB and ran a popular ad that depicted a long line of borrowers waiting to be denied loans by officials at the CFPB.
In practical terms, many opponents of the CFPB oppose the agency because they feel it will limit access to credit for many Americans–especially those who don’t have other resources or stellar credit scores.
Opponents see the latest charges from the CFPB as just further evidence of the agency’s political motivations and pursuit of unprecedented power to regulate people’s lives. Everyone hates hidden charges, but almost every company charges them in some manner.
Hidden Costs Permeate Every Area of Modern Life, so Don’t Blame Payday Lenders
Standard practices in almost every industry involve assessing penalties, late fees, hidden charges and higher costs for people who don’t follow the terms of their contracts. Singling out the payday industry for criticism for overdraft charges that these lenders don’t even set or receive is the height of political deception.
The banking industry grows fat on bank overdraft charges, and local branch offices seldom bounce one large check when they can bounce several smaller checks and earn multiple overdraft fees. Customers know that these charges will get started, so it’s hypocritical and mean-spirited to criticize payday lenders for common merchant practices of presenting checks multiple times for payment.
In soundbite terms, opponents of the latest charge against payday lenders might tweet, “Get real, and call me when you’ve cleaned your own house.”
Clinton Praises Pending CFPB Regulations for Payday Loans
In a statement issued by Clinton and posted on the website, Hillary for America, she responded to the CFPB’s release of proposed regulations. In her statement, Clinton refers to “abusive payday lenders” who are a “drain on the resources” of needy families. She decries payday loans as an endless debt cycle that traps families and that can result in “brutal” collection practices. She describes the CFPB as a “government watchdog” with the sole function of protecting Americans from deceptive and unfair financial practices.
In the same statement, Clinton compares her support for the CFPB with what she alleges to be the position of her opponent, Donald Trump, accusing him of wanting to abolish the CFPB and roll back the Wall Street reforms that arose after the financial crisis. In an interview with Reuters, Trump stated that the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 has harmed the economy and needs significant reform. In fact, Trump stated that he would dismantle almost all of Dodd-Frank, claiming that it has “made it impossible” for the nation’s bankers to function and “very hard” for them to make business loans that could create jobs.
Support for Proposed CFPB Regulations Divided by Party
Although there are some Democrats who oppose the pending CFPB regulations and some Republicans who support them, most Republicans have voiced opposition to the regulations and most Democrats have expressed support. This is not surprising; Republicans have been pushing for changes to Dodd-Frank from the time it was enacted. Republicans in both the Senate and the House have pushed for relaxed requirements for smaller banks, greater restrictions on the introduction of new rules and abolishment of the CFPB. In April, a bill passed the House Financial Services Committee that would include the CFPB, which is currently funded by the Federal Reserve Board, in the federal budget to make the CFPB more accountable.
In addition to the presidential candidates, several members of Congress have issued statements regarding the proposed CFPB regulations and the Dodd-Frank Act. For the most part, Republicans have been critical of both. As quoted in an article published by DSNews.com, Rep. Jeb Hensarling states that the “Dodd-Frank Act is a failure.” Rep. Randy Neugebauer posted his reaction to the proposed CFPB regulations on his official website, warning that the proposed rules will cause harm to the nation’s underbanked and unbanked consumers and calling the rules “Washington at its worst.”
By contrast, most Democrats have been extremely protective of the CFPB and Dodd-Frank. When speaking of the bill to place the CFPB on a budget and a second bill that would repeal the bailout fund for large financial institutions, Rep. Maxine Waters stated that if enacted, the two bills would return the financial system to a time when regulators could not provide protection for consumers or the economy against “financial sector ruin.” Sen. Elizabeth Warren tweeted that if anyone attempts to delay or block the proposed CFPB payday loan regulations, “it’s time to fight back hard.”
Do Payday Lenders Need Federal Oversight?
Another reason that the CFPB proposed rules have been politically divisive involves the rights of the states to make their own decisions regarding financial products. Rep. Randy Neugebauer states that the CFPB has not consulted state officials or tribal officials to determine what frameworks already exist. He asserts that virtually every state has enacted laws addressing payday loans, and he goes on to state that recognized tribes and state legislatures have “universal authority” to regulate payday loans. He feels that before state laws are preempted, additional study should be undertaken, claiming that there are too many questions that the CFPB has not answered for the proposed regulations to be implemented at this time.
Simple Answers to Payday Lending Issues Non-Existent
There are no simple answers to the issues raised by supporters and detractors of payday loans. Both sides in the debate have raised valid points that can be applied to at least some lenders and borrowers.