Biden administration should restore, strengthen consumer protections

The Consumer Financial Protection Bureau (CFPB) under the Trump administration has been gutting consumer protections for four years, putting low-income families at risk of exploitation by predatory lenders. The incoming Biden administration should prioritize restoring and strengthening federal consumer protections to prevent further harm to these families.

The Trump administration and allied interests have sought repeatedly to erode the bureau’s independence and authority by reducing its transparency, dropping some investigations, delaying or scrapping regulations, and successfully challenging the bureau’s independent structure in court. The bureau is the United States’s only federal financial watchdog — its erosion has left people with dangerously little standardized federal protection from abusive lenders.

The economic fallout from the COVID-19 pandemic has plunged many families across the country into financial distress, making strong consumer protections all the more important. As federal relief packages have fallen short of adequately assisting workers in their economic recovery, people experiencing poverty are increasingly unprotected from predatory lenders, including payday lenders who offer small-dollar loans with extortionate interest rates. These lenders often target low-income Black, Latino and Native American communities, taking advantage of borrowers’ financial vulnerability. 

Alongside the bureau’s rollback of important rules, regulatory enforcement actions by the CFPB declined by 80 percent between 2015 and 2018, and monetary relief provided to victims of illegal consumer financial practices has declined by 96 percent. The Biden administration should reverse this course, and Congress should support it. 

Advocates already have begun leading the charge to strengthen consumer protections in anticipation of the new administration. On Oct. 29, the National Association for Latino Community Asset Builders, represented by Public Citizen and the Center for Responsible Lending, sued the bureau for repealing key aspects of a rule governing payday and auto-title lenders.

Voters, too, are demonstrating a desire for stronger financial regulation. On Election Day, for example, voters in Nebraska approved Measure 428, which will place an annual 36 percent limit on the interest rate for payday loans — in a state that previously averaged a 404 percent rate. A 36 percent rate still adds up over time, but this reduction makes significant progress toward greater economic and racial justice. 

Earlier this year, to fill gaps in national consumer protections, lawmakers in California passed state legislation that could have a significant impact on low-income families’ ability to access food, housing and other basic needs. Before the pandemic began, a California Assembly member, Monique Límon, proposed creating the California Department of Financial Protection and Innovation. Gov. Gavin Newsom signed the bill  in September, granting the new department authority to monitor and prevent harmful activities by predatory lenders and debt collectors starting in January.

State efforts such as California’s are crucial, but leaving people dependent on the discretion of their state governments to prevent abuse by deceptive lenders is not enough — and would walk back years of progress. The CFPB was established in part because, historically, not many states have adequately protected their consumers from financial abuse.

Failure to enforce federal consumer protections and consistent slashing of existing regulations have the dangerous potential to allow abusive lending to continue, especially where state-level protections are lacking. As our research has shown, allowing lenders to operate unchecked has affected many consumers’ ability to meet their basic needs, such as for food and shelter — rights protected under international human rights law. 

The passage of Nebraska’s Measure 428 and the creation of California’s department are positive steps for consumer protection, and if properly implemented could play an important role in mitigating the effects of economic recession on low-income families in those states. 

But the weakening of national protections is damaging to consumers across the country. Organizations such as the National Association for Latino Community Asset Builders, Public Citizen, and the Center for Responsible Lending are doing vital work to reinstate crucial federal protections. 

It is encouraging that President-elect Joe Biden’s review team for the CFPB includes volunteers with extensive consumer advocacy experience. Among them are Leandra English, a former deputy CFPB director who helped build the agency, and Manny Alvarez, commissioner for California’s new consumer protection department. The Biden team should prioritize nominating a CFPB director who is committed to strengthening regulations that protect consumers. Further, the new administration should work with the nominee to build a strong regulatory agenda independent of industry influence, including by considering a federal cap on interest rates and reinstating and strengthening restrictions on predatory lenders.

By rebuilding the CFPB and working with the agency and Congress to enact robust consumer protections during a time of great need, the Biden administration can begin to address entrenched racial and economic injustice and start to better protect consumers’ basic human rights.

Namratha Somayajula is a senior business and human rights associate at Human Rights Watch. Follow her on Twitter @namratha_soma.

Editor’s Note: This article was edited after publication to correct the name of the Center for Responsible Lending.