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January 30 2018

When "Protecting" Consumers Actually Narrows Their Choices

by Charlotte Hays

A headline on a recent Market Watch story indicates that  there is cause for concern that Trump administration changes at the Consumer Financial Protection Bureau (CFPB) will "weaken consumer protections."

Upon reading the story, however, I realized that in some of the examples given, it is not consumer protections at all that are being weakened. What is being weakened is the ability of the CFPB to prevent consumers from making choices that certain elites don't like that is being weakened. There is a difference.

Pay day lenders will be affected by the relaxation in CFPB enforcement:

[Acting CFPB Director Mick] Mulvaney announced this month the CFPB may reconsider a rule [former CFPB head Richard] Cordray implemented for payday lenders that was designed to protect consumers and limit the amount lenders are allowed to loan them, if they do not meet certain borrowing criteria.

Of the relaxation in the CFPB regulations, Market Watch observes:  

But that’s not good news for consumers, especially low-income households who often turn to payday lenders who have charged interest rates of up to 400%, Frisch said. “There is no reason to delay implementation of this rule — unless you are more concerned with the needs of payday lenders than you are with the interests of the consumers these financial bottom-feeders prey upon,” he told MarketWatch.

Still, the CFPB’s payday lending rules were complex, amounting to more than 1,000 pages, said Nick Clements, the co-founder of personal finance company MagnifyMoney, who previously worked in the credit industry. Although payday lenders can indeed cause borrowers financial distress, “I do think there are some fair criticisms of the CFPB in terms of excessive complexity,” he said.

Contrary to what MarketWatch opines, this relaxation of rules is good news for the consumer who gets in a jam and doesn't have family resources.

I have a friend, a middle class person, not your image of somebody being set upon by greedy loan sharks, who resorted to a pay day loan--it was the best, possibly only, way to take care of an emergency. The interest rate was exorbitant--that is the point of making a loan to somebody who doesn't have other resources and otherwise would have no way to obtain the needed funds.

When the CFPB promulgated its new pay day loan rules last year, Edward  D’Alessio, the executive director of Financial Service Centers of America, which represents the small-dollar lending industry, argued that these regulations would create "credit deserts" for Americans who do not have access to traditional banking. He said that his industry completes more than 350 million loans a year, and that many of these loans are "a lifeline for our customers."  

Progressives would like to close this avenue of choice, and, while it is not ideal, it is sometimes a valid choice. For the record, my friend did not find it in the least habit forming (though I am sure some people do--but the problem precedes the loan).

Former CFPB head Cordray was proud of what he called "pushing the envelope" in the agency's relentless going after businesses (incluing pay day lenders). New CFPB head Mulvaney explained in a piece in the Wall Street Journal why this attitude in a powerful federal agency is a bit frightening:   

That entire governing philosophy of pushing the envelope frightens me a little. We are government employees, and we work for the people. That means everyone: those who use credit cards and those who provide the credit; those who take out loans and those who make them; those who buy cars and those who sell them.

All of those people are part of what makes this country great, and all of them deserve to be treated fairly by their government. There is a reason Lady Justice wears a blindfold and carries a balance scale along with her sword.

It is not appropriate for any government entity to “push the envelope” when it comes into conflict with our citizens. We have the power to do damage to people that could linger for years and cost them their jobs, their savings and their homes. If the CFPB loses a court case because we “pushed too hard,” we simply move on to the next matter.

But where do those we charged go to get their time, their money and their good names back? If a company closes its doors under the weight of a multiyear Civil Investigative Demand, we still have jobs at CFPB. But what about the workers who are laid off as a result?

Senator Elizabeth Warren (D-Mass.) and Rep. Maxine Waters (D-Ca.) have sent a letter to Mulvaney (and to Deandra English, plaintiff in a lawsuit aimed at her becoming acting director of the CFPB) charging that he is relaxing regulations on pay day loans because he allegedly had received campaign contributions from the industry.

The thrust of the argument is that the CFPB send an enormous amount of time and energy on the regulations and thus they should not be undone.

Defenders of Mulvaney's actions counter that the agency and these rules have the potential to destroy an industry that, while the elites might not like it, provides resources and jobs.

We don't want consumers to be taken advantage of and, when legal protections are in order, Congress should enact them. Having a federal agency with vast powers, which is what the CFPB has been, is another matter. Sometimes regulations cut off the ability of a consumer to exercise independent judgment resolve a problem independently, and that is not a consumer protection.

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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