The Consumer Financial Protection Bureau (CFPB) needs to be reformed whether Hillary Clinton or Donald Trump wins this fall. They are now in the process of passing on a new rule that will hurt the very people it is supposed to protect. Middle and low income Americans are sometimes in need of small-dollar short-term loans and the CFPB’s new rule would create a massive new paperwork burden that will deter consumers from taking loans and discourage online lenders from accepting loans for fear of violating the existing rule – then getting sued.
Insiders on Capitol Hill view the CFPB with skepticism, because they don’t answer to Congress. The Dodd-Frank law set them up with a funding stream that is not reliant on Congress. This puts them in a position where they don’t have to answer to anybody and they can issue rules and regulations with little recourse from the American people through their elected representative. That is a problem.
A case study in why this is a problem is rolling out now before our eyes with the new CFPB rule impacting small-dollar loans.
Kevin Mooney has written an educational Op Ed at National Review Online that explains the issue in detail:
In June, the CFPB, which was set up under the 2010 Dodd-Frank legislation, issued a proposed rule targeting short-term, small-dollar lenders with burdensome new requirements built around the “Ability to Repay.”
The requirements include over one thousand pages that will impose massive new requirements that are unnecessary. Today, the privately run small dollar lenders have an incentive to make sure that when they give out a loan, the person accepting the loan can repay.
Yet, the new rules will impose ridiculous requirements that will make the paperwork required for a really small loan the same as for when a person goes in for a home mortgage. This one size fits all requirement is burdensome and will end up cutting off loans to many who want one.
Mooney explains in National Review Online the following:
An analysis of the CFPB proposal finds that small-dollar lenders “must make a reasonable determination of the consumer’s ability to repay the loan according to its terms” and that it “must determine that residual income is sufficient to make loan payments and cover basic living expenses during the loan term.” The lender must also “make reasonable projections about the amount and timing of net income, debt payments, housing expenses, and child support.” There’s more where that came from. The paperwork requirements for that $500,000 mortgage are much shorter and more cogent by comparison.
This regulation is exactly why some in Congress want to reel in the CFPB. This type of regulation gives oxygen to the idea that Sen. Ted Cruz (R-TX) and John Ratcliffe (R-TX) who want to eliminate the whole agency and start over. When the government regulates with too heavy a hand, that is when the people lose faith in the government.
The American people are losing faith and patience with the CFPB and this rule that limits choice will create a bigger trust deficit between the government and the people.
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