Congress may have to protect consumers from the Consumer Financial Protection Bureau

Supposedly, the Consumer Financial Protection Bureau was established to protect consumers from unscrupulous firms in the financial services industry. But it increasingly looks as if Congress will have to protect consumers from the Consumer Financial Protection Bureau.

Right now, the agency, created in the Dodd-Frank legislation of 2009, is pushing a new regulatory paperwork mandate that will hurt the very people it is intended to help. If this goes forward, Congress should get ready for some angry phone calls.

{mosads}In March, the CFPB announced proposed rules that require lenders to force consumers to produce much more paperwork to receive short-term loans and establish an interest rate cap that is calculated over the course of a year.  The rules are intended not to protect consumers but to shut down an industry that has begun to affect the bottom line of banks. These are issues for Congress, not unelected bureaucrats.

The supporters of the CFPB already have engaged in a disinformation campaign to smear companies who provide low-dollar short-term loans. A headline in The Hill last week screamed “Payday lenders gave $15M to GOP campaigns in 2014 races: report.” 

According to this headline, the payday lending industry is secretly pouring money into the war chests of Republican congressional candidates so those Republicans will do its evil bidding on Capitol Hill.

Let’s unpack. First, the report is derived from campaign finance reports in which the lenders themselves made the government aware of their contributions through the official and appropriate legal channels.

Second, the report comes from Americans for Financial Reform, an Astroturf group funded by Democrats to support Dodd-Frank and other overreaching Democrat economic “reforms.” As such, it ignored an obvious question: How much went to Democrats?

The answer, not surprisingly to anyone who has spent much time in Washington, is that a substantial amount did go to Democrats but not as much as to Republicans.

In 2013, for example, 30 percent of contributions in federal races by the Online Lending Alliance, a trade group, went to Democrats, as did nearly 40 percent of its state-level contributions. The figures tilted more Republican in the federal election year of 2014, but the biggest recipients were people such as Sens. Tom Cotton of Arkansas and Bill Cassidy of Louisiana – both free-market Republicans seeking to knock off Democratic senators known to be hostile to consumer lending.

And that’s not all that is disingenuous on the Americans for Financial Reform website. The site also features opening remarks at a congressional hearing in March by Richard Cordray, the illegally appointed head of the Consumer Financial Protection Bureau.

In it, he lays out the “case,” such as it is, for further regulating consumer lending. He rolls out the regular parade of horribles – soldiers deployed to the front lines having their bank accounts looted by lenders; lenders breaking apart repayments into smaller amounts so they can access the accounts more times and run up more hot check fees on their already-delinquent customers (even though it makes absolutely no sense to further financially strap someone who is behind on repaying you), etc.

He then proposes a plan to prevent “debt traps,” which is to basically make consumer lenders use the same procedures as normal banks to determine eligibility for loans. In other words, rules that would drive payday lenders into bankruptcy and force all their customers either to banks, which will again laugh at their applications, or to truly unsavory credit sources.

Consumer lenders have spotted an opening in the credit market of people with neither the time nor the resources to apply for loans from traditional banks. They have built a business model that allows them to take on more risk than normal banks ever would.

They seek to be repaid, which all lenders do, but there is little in the public record to suggest they send Rocky and Muscles to your front door with brass knuckles if you fall behind. And no one supports agreements that mislead customers about their obligations or otherwise defraud them.

Yes, it costs more to access credit in this way, but all the adults who receive these loans know this going in. All you have to do to avoid the fees and higher interest rates is to keep your word and repay your loan.

But that’s not good enough for Cordray. He accuses consumer lenders of setting up their customers to fail and of ensnaring “considerable numbers of them in extended debt traps.”  This, he assures us, “is simply not responsible lending.”

Then, he outlined a program to end “the debt traps that are so pervasive in both the short-term and longer-term credit markets.”

So pervasive? How pervasive can they be when the average loan is $388, the average customer is all paid up in three months or less, almost three-quarters of the loans are paid on time and fewer than 11 percent are charged off?

It’s interesting that an Astroturf organization dedicated to furthering far-left economic policies wants to go after an industry for campaign donations while it works to further policies that would block this industry from competing with its donors.

Consumer credit customers are no more a problem for the American economy than the millions who walked away from their mortgages because the value of the house had fallen below the value of the mortgage. Consumer lenders are no more a threat to the American economy than the banks that brought us liars’ loans, no-doc loans and the pervasive hot check and other account fees that gave rise to payday lending.

But someone is paying to make us think that way. Someone who has been in the kitchen and wants to make sure the competitive heat dies down. When comes the report from Americans for Financial Reform on who those people are funding?

McNicoll is a conservative columnist and freelance writer based in Alexandria, Va. He is a former senior writer for The Heritage Foundation and former director of communications for the House Committee on Oversight and Government Reform.