A newsletter from the Community Financial Services Association of America (CFSA),
the national trade association for nonbank lenders offering small-dollar, short-term credit.
July 18, 2016
ICYMI: What People Are Saying About the CFPB Rule for Small-Dollar Lending
Last month, the CFPB released its rule proposal for small-dollar loan products, including payday, vehicle title, and installment loans. For the millions of Americans who use these products each year, the rule's arbitrary restrictions will have a devastating effect. Leading academics, experts and elected officials agree that the CFPB has devised a flawed rule that will harm, rather than help, consumers. Here's what they're saying:
Javier Palomarez, President, U.S. Hispanic Chamber of Commerce: "The CFPB's arbitrary rule ignores the needs of consumers, reduces access to credit for millions and it harms small businesses and the millions they employ. Moreover, it overlooks disproportionate impact that the downturn had on Hispanic household wealth; and frankly, is downright disrespectful to the unrelenting patriotism that has driven the 4.1 million Hispanic-owned businesses to lead our national recovery by creating jobs right here in the United States."
Stephen Carter, professor, Yale Law School: "It's important to remember that reducing the supply of credit to high-risk borrowers doesn't necessarily reduce the demand for credit by high-risk borrowers... it's also possible that potential borrowers will seek loans in the informal economy (read: loan sharks) or from family and friends, who have no way of spreading the risk and therefore, if the borrower defaults, are made worse off. In other words, the uncalculated costs of the rules to the poor are likely to be substantial."
Paige Marta Skiba, Professor, Vanderbilt Law School: "Consumers will always find themselves short of cash occasionally. Low-income borrowers are resourceful, and as regulators play whack-a-mole and cut off one credit option, consumers will turn to the next best thing, which is likely to be a worse, more expensive alternative."
Editorial Board, The Wall Street Journal: "Here's what government never considers: the alternatives. Some 20% of Americans are not served by banks, according to FDIC data, and three-quarters live paycheck to paycheck. Payday paternalists would leave many of these individuals no option except to bounce checks, with fees that can top 1,500%; stop paying the electric bill; or visit Fat Tony the loan shark."
Jeff Jacoby, columnist, Boston Globe: "Without payday loans, many consumers will be left with worse options. In states that have banned such loans, households bounce more checks, endure more harassment by debt collectors, and are more likely to file for Chapter 7 bankruptcy."
Rep. Steve Palazzo (R-MS): "I don't want my constituents being forced to loan sharks or forced out onto the streets because another government agency wants to regulate businesses out of business. Drying up all of the access to credit will cause small businesses to close, people to lose their jobs, and many to turn to less-regulated, often illegal means of securing credit."
According to a recent
Federal Reserve study, forty-seven percent of Americans cannot pay for an unexpected $400 expense. What is missing in the bureau's rule is an answer to the very important question, "Where will consumers go for their credit needs in the absence of regulated nonbank lenders?"
AMY CANTU
CFSA | Director of Communications
703.842.2092 (o)
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