ALTERNATIVE FINANCIAL SERVICE PROVIDERS ASSOCIATION

U.S. Senator David Vitter: D.C. Circuit Decision Confirms CFPB Structure is Unconstitutional

Oct 15,2016 - Vitter: D.C. Circuit Decision Confirms CFPB Structure is Unconstitutional

(Metairie, La.) - U.S. Senator David Vitter (R-La.) released the following statement regarding the U.S. Court of Appeals for the D.C. Circuit's decision that the Consumer Financial Protection Bureau's (CFPB) operating structure is unconstitutional. Vitter has been a vocal critic of the CFPB, particularly of the autonomy offered to the CFPB Director.

"The D.C. Circuit's decision confirms what I have always said: the CFPB has a very real, systemic problem with oversight, transparency, and accountability. Much of that is due to the fact that it remains largely unregulated and is under the reign of an all-powerful czar," said Vitter. "CFPB is more of a misnomer because it, in fact, does not protect the consumer. This super-bureaucracy needs to be dismantled and reformed, and this decision is an important step toward protecting consumers and businesses."

In September Vitter gave the keynote speech at an event at the Heritage Foundation entitled, "Small-Dollar Loans: How the Latest Rules from the Consumer Financial Protection Bureau (CFPB) Are Likely to Harm Millions of Consumers," which primarily focused on the CFPB's proposed rule regulating certain types of payday lending markets and small-dollar loans.

Click here to watch Vitter's remarks at the Heritage Foundation.

Vitter led opposition efforts in the U.S. Senate during CFPB Director Richard Cordray's nomination process and has been advocating to reform the CFPB to allow for better transparency and accountability.

POLITICAL NEWS

"Unconstitutionally structured." A "gross departure from settled historical practice."

That's how the U.S. Court of Appeals for the District of Columbia Circuit recently described the Consumer Financial Protection Bureau (CFPB), the federal watchdog led by Director Richard Cordray. This week, the appellate court ruled that Director Cordray, an Obama appointee who can only be fired by the president and for just cause, wields too much influence. To address the CFPB's startling lack of accountability, the court voided the for-cause provision, meaning that Director Cordray can now be removed by the president at any time and for any reason.

It shines new light on an increasingly powerful federal agency with plenty of baggage. Rep. Sean Duffy (R-Wis.) is on-record stating that "the CFPB has been riddled with allegations of discrimination based on an employee's race, their age gender, and now sexual orientation."

The CFPB is a mess-from allegations of discrimination against its employees to the long list of crippling financial regulations it relentlessly churns out.

No industry is more targeted than payday lenders, who provide millions of low-income Americans in need of liquidity with short-term loans. In the words of Director Cordray: "We do not want lenders to be abusing their preferential access to people's accounts." As Sen. Elizabeth Warren (D-Mass.), the CFPB's fiercest backer in Congress, put it: "[P]ayday lenders that build business models around trapping people in a never-ending cycle of debt are throwing bricks to a drowning man." And the agency has vowed to "prepare new regulations to address issues with small-dollar lending," which the CFPB refers to as "payday debt traps."

Yet the assumption that payday borrowers are trapped in vicious debt cycles has little empirical backing. A 2009 study from Clemson University found that neither the legality of payday lending nor an increase in the number of loan stores led to higher rates of bankruptcies-backing up earlier research from Dartmouth College and the Federal Reserve Bank of New York. Professor Michael Maloney, who co-authored the study, argued the following: "[P]ayday loans appear to increase the welfare of consumers by enabling them to survive unexpected expenses or interruptions in income." He also claimed that payday loans "are not harmful to their users." Read the entire article at THE HILL

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The CFPB Should Learn That No Means No

Despite professing a desire for "financial inclusion," usually understood as better access to financial products for lower income people, the Consumer Financial Protection Bureau (CFPB) has taken aim at a product used extensively by low- and moderate income Americans: the short-term, low value loans known as "payday" loans. What is even more striking about the proposed rule, however, is the fact that it works as an end-run around an express limit on the CFPB's power. The CFPB has spent its short life pushing the bounds of its authority in numerous directions, going so far as to incur a slap from a federal court when it trod on the toes of another agency. The CFPB could be excused for thinking that at least some members of Congress desired such expansion, given the broad and amorphous authority the Dodd-Frank Act grants the new agency. But it is hard to justify evading an express prohibition.

Although the CFPB is given the authority to proscribe unfair, deceptive, and abusive practices, the Dodd-Frank Act explicitly withholds from the CFPB the authority to "establish a usury limit." The proposed rule does not set a rate cap, but it does make lending at any rate above 36 percent so onerous as to be infeasible. In fact, it is not clear that it would be even be possible to comply with the rule.

On Friday, I submitted a letter to the CFPB, expressing concern over the agency's authority to enact the rule as proposed. In particular, the letter notes that the underwriting process required for loans with an effective annual interest rate higher than 36 percent are not only onerous but require the lender to make determinations that may be impossible to make. For example, under the proposed rule a lender would be required to "forecast a reasonable amount of basic living expenses for the consumer - expenditures (other than debt obligations and housing costs) necessary for a consumer to maintain the consumer's health, welfare, and ability to produce income[.]" This amount can be difficult for individuals to determine for their own households. My husband and I have an estimate we use to help us save for an emergency, but I couldn't swear to its accuracy given the vagaries of life with small children. I couldn't guess what the right number might be for any other household in my acquaintance. If I am uncertain what my own family might need, it is difficult to see how a storefront lender could make this determination for a prospective borrower who walks in off the street. Certainly this level of underwriting, which surpasses even what is required for most mortgages, is not cost-effective for a loan of only a few hundred dollars. Read more at the CATO INSTITUTE

Unbanked Hispanics Pay Steep Fees for Alternative Financial Services

Mayra Navarro's bank closed her account after a series of overdrafts. She wasn't eligible to open another bank account because she had been blacklisted by ChexSystems, an agency that tracks consumers' banking histories. Like many unbanked Hispanics, she turned to prepaid debit cards, check cashing services and money orders, which all came with fees.

"I felt like I had failed at life and lost all control," says Navarro, an executive assistant in California.

She's not alone. Recent data by the Federal Deposit Insurance Corporation reveals that approximately 16% of Hispanic households don't have bank accounts. Using prepaid cards as an alternative could cost them up to $489 a year, according to a recent NerdWallet study. Fees from payday loans and money orders can further drive up the cost of being unbanked.

Without bank accounts, Hispanics are left vulnerable to high-interest debt traps and miss out on credit-building opportunities.

"They are discouraged very soon when they start to pay fees or struggle to maintain a minimum balance," says Antonio Alba Meraz, an educator with the Latino Financial Literacy Program at the University of Minnesota. Monthly banking fees can run as high as $15 and the median overdraft fee costs $34.

Read the entire article at NERDWALLET

Ending Payday Lending Would Harm Consumers: Consumer Financial Protection Bureau's Proposed Rule Threatens to Cut off Access to Credit for Those Who Need It Most By Hilary Miller

Payday loans are unsecured short-term loans made at storefronts and online. The average loan amount is $375, ranging generally from $100 to $500, most often due in two weeks or on the borrower's next payday. They are most frequently used by constrained consumers who have few or no liquid assets and limited opportunities to borrow on credit cards or from other mainstream lenders.

The Consumer Financial Protection Bureau (CFPB), a regulatory agency established by the Dodd-Frank Act, is set to issue a rule that could destroy most of the payday loan industry. On June 2, 2016, the CFPB published a comprehensive notice of proposed rulemaking covering payday loans. Three fourths of the nation's 20,000 storefront payday outlets will be rendered unprofitable and forced to close by the CFPB's rulemaking.

Severe restrictions on the supply of payday credit will not eliminate the demand for these loans. Borrowers will not stop seeking the credit they need. It is precisely under these circumstances that illegal lenders thrive.

Borrowers and lenders should retain the ability to fashion their own market based credit solutions based on the borrowers' individual circumstances and the lenders' risk appetites. The effect of the CFPB rule will be to prevent fully informed parties from entering into the business relationships they voluntarily choose.

Read the entire article at COMPETITIVE ENTERPRISE INSTITUTE

CFSA Projects More Than One Million Customers Voice Opposition to CFPB's Restrictive Payday Lending Rule

CFPB Must Clear Massive Backlog

CFSA Announces CommentWatch Portal  to Track Progress

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