Pay­day lend­ing rules that work

Con­sumer pro­tec­tions must be bal­anced with their needs

The Washington Times Weekly - - Commentary - By Al­cee L. Hastings

It is an un­for­tu­nate re­al­ity that many peo­ple live pay­check to pay­check in this coun­try. For these in­di­vid­u­als, any un­ex­pected bill, whether it is a car re­pair or a med­i­cal emer­gency, can wreak havoc. Short-term, small-dol­lar loans are es­sen­tial re­sources for those who need just a lit­tle help over­com­ing these types of un­ex­pected ex­penses.

Pay­day loans are not just for un­fore­seen short-term fi­nan­cial emer­gen­cies. Five-and-a-half per­cent of all Amer­i­cans have used short-term loans in the past. I hap­pen to be one of them. I used a short-term loan to start my law prac­tice, be­cause that was the only loan avail­able to me at the time. It is be­cause of my own per­sonal ex­pe­ri­ence that I know how crit­i­cal this type of credit can be. As the fed­eral gov­ern­ment works to up­date con­sumer pro­tec­tions in the mar­ket­place, I be­lieve it is crit­i­cal that we bal­ance new reg­u­la­tions with the need to pro­tect con­sumers’ abil­i­ties to ac­cess cap­i­tal and credit.

The Con­sumer Fi­nan­cial Pro­tec­tion Bureau (CFPB) re­cently an­nounced a rule to bet­ter pro­tect con­sumers from un­scrupu­lous small-dol­lar loan prac­tices. Like my col­leagues in Congress, I wel­come new pro­tec­tions that will en­sure con­sumers do not fall into debt traps. How­ever, if the CFPB im­poses reg­u­la­tions with­out care­fully bal­anc­ing the needs of con­sumers, it will fail to pro­vide fi­nan­cial pro­tec­tion to those who need it most. I fear that in try­ing to pro­tect con­sumers, the CFPB’s rule will cut off ac­cess to short-term credit with­out pro­vid­ing an­other av­enue for those who need these types of loans. This, in turn, could force con­sumers to turn to more ex­pen­sive al­ter­na­tives, or worse, un­reg­u­lated or oth­er­wise il­licit venues for se­cur­ing loans.

This con­cern was rightly noted by Drew Break­s­pear, com­mis­sioner of the Florida Of­fice of Fi­nan­cial Reg­u­la­tion. In his let­ter to CFPB Di­rec­tor Richard Cor­dray on June 1, 2015, Mr. Break­s­pear wrote that the CFPB’s pro­posal will “prob­a­bly elim­i­nate ac­cess to small loans and credit, and will force con­sumers to turn to more ex­pen­sive and po­ten­tially un­li­censed fi­nan­cial ser­vice providers, sub­ject­ing them to greater risks of fi­nan­cial fraud.”

The State of Florida knows all too well that there can be dis­hon­est ac­tors in the pay­day in­dus­try. That is why, 16 years ago, the Florida leg­is­la­ture acted unan­i­mously to re­form the state’s pay­day loan sys­tem to pro­tect con­sumers from falling into debt traps. In the years since, Florida con­sumers have been able to get short-term, low-dol­lar loans to help them pay a bill be­fore the elec­tric­ity gets cut off, or help them cover a car pay­ment, pay the rent, or pur­chase a sick child’s pre­scrip­tion med­i­ca­tion. By and large they are sat­is­fied with their ex­pe­ri­ence in the mar­ket­place.

To con­firm this, one sim­ply needs to look at the CFPB’s own data on the num­ber of com­plaints that have been re­ceived against the in­dus­try. Ac­cord­ing to the CFPB’s May 2016 Monthly Com­plaint Re­port, the pay­day loan in­dus­try is one of only two in­dus­tries to see a drop in con­sumer com­plaints. In Florida specif­i­cally, a mere 1 per­cent of pay­day con­sumers have com­plained about their ex­pe­ri­ences.

That’s not to dis­count the ex­pe­ri­ences of the thou­sands of Amer­i­cans who have fallen into debt traps. We can al­ways do bet­ter to keep con­sumers safer from preda­tory lend­ing. How­ever, just as we can­not paint with a broad brush re­gard­ing dis­hon­est ac­tors, we must also not overly gen­er­al­ize those who run their busi­nesses in ac­cor­dance with the law as un­fair.

My friend and for­mer col­league, Rep. Bar­ney Frank — one of the prin­ci­ple ar­chi­tects of con­sumer pro­tec­tion and fi­nan­cial re­form — rec­og­nized this need. When Mr. Cor­dray was ap­pointed as di­rec­tor of the CFPB, Mr. Frank noted, “This does not mean that the ma­jor­ity of pay­day lenders … are dis­hon­est or un­scrupu­lous.” He de­scribed the ap­point­ment of Mr. Cor­dray as mean­ing that “con­sumers can now be pro­tected against a full ar­ray of fi­nan­cial prac­tices.” Such over­sight is as nec­es­sary now as it was when the CFPB was cre­ated in 2011.

When the CFPB an­nounced that it would be propos­ing a rule on pay­day lend­ing, I was hope­ful that it would take the same bal­anced ap­proach that the Florida leg­is­la­ture took. I met with Mr. Cor­dray on June 2, 2015, to weigh in on the CFPB’s rule­mak­ing process. At that meet­ing, Mr. Cor­dray ac­knowl­edged the suc­cess story of the Florida model and sug­gested it be con­sid­ered as part of any reg­u­la­tory frame­work es­tab­lished by the CFPB. He fur­ther in­di­cated that he was in con­tact with Mr. Break­s­pear, whose is re­spon­si­ble for im­ple­ment­ing the Florida law. I urged Mr. Cor­dray to travel to Florida to see first­hand the im­ple­men­ta­tion of Florida’s model, and to meet with the con­sumers uti­liz­ing these ser­vices.

On July 31, 2015, a num­ber of my col­leagues on both sides of the aisle joined me in send­ing a let­ter to Mr. Cor­dray ask­ing him to work in con­sul­ta­tion with in­dus­try stake­hold­ers to en­sure a fair and trans­par­ent process. I urged him to con­duct field tri­als in spe­cific mar­kets to gain a bet­ter un­der­stand­ing of how any pro­posed reg­u­la­tion will work in prac­tice. To my knowl­edge, nei­ther has taken place as of now.

The rule­mak­ing process con­tin­ues. Hun­dreds of com­ments will be sub­mit­ted and re­viewed by in­di­vid­u­als, or­ga­ni­za­tions and other stake­hold­ers. As this process pro­gresses, the CFBP must bear this ques­tion in mind: If ac­cess to short-term, small-dol­lar loans is gone, where is one sup­posed to turn? I sin­cerely hope that be­fore the fi­nal rule is is­sued, Mr. Cor­dray en­sures this ques­tion is ad­dressed. I am ready to help how­ever I can to en­sure that con­sumers are given the pro­tec­tions they de­serve with­out sac­ri­fic­ing ac­cess a full-range of fi­nan­cial prod­ucts. Al­cee L. Hastings, a Florida Demo­crat, serves as se­nior mem­ber of the House Rules Com­mit­tee, Rank­ing Demo­cratic mem­ber of the U.S. Helsinki Com­mis­sion, and cochair­man of the Florida con­gres­sional del­e­ga­tion.

IL­LUS­TRA­TION BY ALEXAN­DER HUNTER/THE WASH­ING­TON TIMES

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