Much has been written about the CFPB's release on March 26th of the Outline of Proposals for potential rulemakings for payday, vehicle title, and similar loans. If you don't want to read the entire proposal, do take a few minutes to review the summary pages 6-7, the proposal for short-term loans at pages 7-8, and the proposal for longer-term loans at pages 19-21.
Here are our five “take-a-ways” that we want to share as to the policy thinking behind the proposals:
- The CFPB is focused like a laser beam on checking account access via ACH, remote checks or other authorization that allows a lender to zap money from the customer's checking account. The CFPB thinks that this ability gives lenders an unfair advantage in collection of debt from customers.
- And, vehicle secured loans are in the cross-hairs of the CFPB because taking away a customer's transportation can cause loss of a job—again, giving the creditor an unfair advantage in collecting debt in the eyes of the CFPB.
- The burden of determining one's ability to incur and repay short term, small dollar debt, is being shifted from the consumer to the creditor. This shift effectively makes the lender responsible for the consumer's ability to repay a loan.
- The CFPB is intent on keeping consumer finance companies out of short-term, small dollar lending with vehicle collateral and the ability to take payment via ACH. This approach is much the same as that used by the Federal Reserve Board in causing consumer finance companies to exit the consumer real estate lending market. That is, complying with the rules to continue to make short term, small dollar loans is going to be prohibitively expensive. And, this is the real purpose behind this proposal. Policy makers at the CFPB really are social engineers, intent on “helping” consumers by restricting their access to small dollar loans.
- And, finally, the “all-in annual percentage rate” as a measurement device is government hypocrisy at its height. What happened to the 50 year old APR? The use of such an “all- in apr” is an admission of what the short term, small dollar lenders have been saying for years–APR is just not relevant when discussing short term, small dollar loans. They may have won that battle, but lost the war.
If adopted and not successfully defeated in court, score another victory for social/economic engineering by an unelected and virtually unchecked regulatory body.