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From Banking and Finance Law Daily, February 12, 2016

Hearing examines CFPB’s payday lending ‘assault’ on state and tribal sovereignty

By John M. Pachkowski, J.D.

A hearing conducted by the Financial Institutions and Consumer Credit Subcommittee examined the Consumer Financial Protection Bureau’s latest attempt to restrict consumer access to financial products and services, namely short-term, small dollar lending or payday lending.

The subcommittee heard testimony from:

The Consumer Bankers Association also submitted a “Letter for the Record,” stating that it believes that “it is contrary to the intent of any regulatory action to force further monetary constraints on the consumers it intends to help.” The letter concluded, “CBA’s members stand ready to work the Committee, the CFPB and prudential regulators to find practical and viable solutions for small-dollar credit products.”

Hearing parameters. According to a memorandum released by the House Financial Services Committee, the hearing was intended to examine how lenders in the payday lending market meet consumers’ need for credit, the products and protections available to consumers, and how lenders and products are regulated. Another issue examined was how the CFPB’s proposed efforts to regulate payday lending may affect access to consumer credit as well as existing state and tribal law.

The bureau laid the groundwork for proposed regulation of payday lending in March 2015 (see Banking and Finance Law DailyMarch 26, 2015).

“Washington-knows-best”. In his opening statement, the subcommittee’s chairman, Rep. Randy Neugebauer (R-Texas), noted that although any regulation issued by the CFPB would establish a “federal floor” for consumer protection for covered loans; he called the CFPB’s efforts “yet another example of a Washington-knows-best mentality. Using behavioral economics, which by its very principles says policymakers should make choices for unsophisticated individuals, the CFPB has set down a road of paternalistic erosion of consumer product choice and access to credit.”

Key takeaways. Following the hearing, the Financial Services Committee issued a press release with “key takeaways” which included:

  • Real consumer protection puts power where it belongs: in the hands of consumers, not Washington bureaucrats.
  • Misguided regulation that deprives consumers of access to short-term, small-dollar credit is likely to force many consumers to turn to even more expensive lenders or to do without emergency funds.
  • All 50 states have the authority to enact, repeal, or amend laws to regulate small dollar lending and the Bureau has not been able to point to any specific state as deficient in law or authority to protect its consumers. It is presumptuous for the Bureau to proceed with a rule effectively preempting the laws of every state without first examining the Constitutional and statutory authority supporting its proposal to limit the policymaking discretion of the States and tribes.

Although the hearing examined the effects federal regulation would have on sovereign authority Native American tribal law, it should be noted that tribal corporations controlled by the Miami Tribe of Oklahoma had entered into a non-prosecution agreement with the United States Attorney for the Southern District of New York over their role in an alleged criminal payday lending enterprise (see Banking and Finance Law DailyFeb. 11, 2016).

Finally, to counter the testimony provided during the hearing, Allied Progress, a nationwide nonprofit grassroots organization, released an analysis calling the hearing a “sham” and adding, “Like the Members of Congress organizing the hearing, those being called to testify are allies of the payday lending industry.”

Attorneys: Kelvin Simmons (Dentons).

Companies: Allied Progress; Community Financial Services Association; Consumer Bankers Association; Mercatus Center

MainStory: TopStory CFPB ConsumerCredit DebtCollection DoddFrankAct Loans TruthInLending

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