Consumer protection agency is under attack
You see them in strip malls across Houston: Lenders promise fast cash to people who need it — to be paid off on their payday, or secured by the title to their car. The lenders’ extraordinarily high interest rates generate fat profits for the businesses while pulling their vulnerable borrowers deeper into poverty. According to Texas Appleseed data, the average borrower who took out a $500 payday loan, paying it off in installments, ended up paying back over $1,300.
Over the past decade, payday and auto title loan businesses have drained nearly $18 billion in excessive loan fees from the pockets of Texans. But the damage doesn’t stop there: Borrowers who can’t meet their high payments frequently lose their cars. Last year, in the Houston area, more than 10,000 vehicle repossessions occurred at the hands of auto title lenders. As one Texas auto title loan borrower recently shared in a consumer complaint, “They threatened to take my only car that I really need to survive and care for my child ... I need help getting out of these loan-shark high interest (rates).” Now those predatory lenders are trying to take down the United States’ most important consumer protection agency. We can’t let that happen.
Thirteen years ago, with our economy still reeling from the financial wreckage of the 2008 Great Recession, Congress created the Consumer Financial Protection Bureau. Individuals seldom have the power to hold large financial enterprises accountable, so the CFPB advocates on our behalf to enforce consumer protection laws and adopt rules in support of fair market practices.
The bureau also conducts research and provides consumer education. It is key to maintaining fairness and transparency in the financial services market and avoiding another catastrophic financial collapse. Now, however, the agency is under legal and political attack, and the financial wellbeing of millions of Texans hangs in the balance.
Given the CFPB’s success, it’s no surprise that payday and auto title lenders are leading a charge to dismantle the agency. While Houston and 48 other Texas cities have adopted ordinances to rein in predatory lending abuses by these lenders, city-level action is being undermined by a broad state effort to preempt local ordinances. The bureau is currently the most powerful player standing in the way of these lenders that capitalize on financially vulnerable Texans.
Because Texas state leaders have repeatedly failed to rein in abusive lending practices, the CFPB is a key hope to make a difference here. Opposition to such predatory practices has united a broad coalition of secular and faith-based advocates who seem to agree that profiting off the vulnerable at their most desperate moments is immoral. We’ve worked together for reform at the state, local and national level.
In 2017, the CFPB finalized important rules that would have made payday and auto title loans more affordable. Almost immediately, payday and auto title lenders sued in Texas to stop the consumer-friendly rules from taking effect. After nearly five years of ongoing litigation, the issue is in the hands of the U.S. Supreme Court, which heard oral arguments in CFPB v. Community Financial Services Association of America, Limited, et al. this month.
At the core of this lawsuit is an effort to undermine the funding structure of the CFPB in order to weaken and dismantle it. The funding structure is central to the effectiveness and impact of the bureau. When the CFPB was created, Congress decided that it would be funded through the Federal Reserve. Having an independent funding source brings consistency and stability to this important consumer protection agency and insulates it from the influence of powerful special-interest lobbyists. This structure is similar to other longexisting federal financial regulators.
If the U.S. Supreme Court rules with the predatory lenders, a vast array of transformational consumer protections will fall by the wayside. The CFPB has taken enforcement actions against student loan servicers who overcharged borrowers and had failed repayment systems. The bureau continues to police the market as loan payments restart for the 3.8 million Texans with student loans. Many other CFPB rules are at stake. We have rules that limit high-cost lending abuses, rules surrounding mortgage markets to prevent another crisis like the 2008 economic meltdown, fair debt collection standards, debt bondage protections for survivors of human trafficking, and so many more. In addition, important enforcement victories that are essential to a fair market could be overturned. These victories have resulted in more than $63 million in illegal charges returned to nearly 100,000 Texans.
The CFPB is important for Texas, and losing it will set us all back. Now is the time to raise our voices in our communities and on social media, asking SCOTUS to #DefendCFPB. It is also important to contact our members of Congress. Though they cannot control the outcome of this case, they can pass legislation that would impact the agency’s funding structure, stability and effectiveness to make sure the CFPB continues to stand up for our rights.
Ann Baddour directs the Fair Financial Services Project for Texas Appleseed, a nonpartisan, nonprofit policy and advocacy organization. Steve Wells has served as pastor at South Main Baptist Church, Houston, since 2003 and has been advocating against payday lenders since 2013.