ALTERNATIVE FINANCIAL SERVICE PROVIDERS ASSOCIATION

On small-dollar loans, federal agency peddles fiction

Recently, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray falsely claimed in testimony before the House Financial Services Committee that people in the 14 U.S. states that do not provide small-dollar lending "seem to get by just fine." Director Cordray's statement, and the CFPB's own actions, again prove that the bureau prefers its ideologically-driven activist agenda to facts.

Independent data and academic research have repeatedly disproven the myth that consumers living in states without small-dollar lending are better off. In fact, data and research have repeatedly shown that American consumers value their access to small-dollar loans and face worse financial prospects when small-dollar loans are not available.

A 2007 staff study published by the Federal Reserve Bank of New York found that in certain states that banned small-dollar loans, consumers "bounced more checks, complained more about lenders and debt collectors, and have filed for Chapter 7... bankruptcy at a higher rate."

A separate study by a senior economist at the Federal Reserve Bank of Kansas City found that limiting access to small-dollar loans leaves consumers with fewer credit options, can hurt consumers' credit standings and leads to consumers settling for inferior products. The study noted that small-dollar loans can be a sensible and less costly credit option for underserved and underbanked communities. 

Just last month, a survey of small-dollar loan customers conducted by KRC Research found that a new small-dollar lending ban in South Dakota will severely restrict customers' access to small-dollar credit. In fact, 66 percent of respondents believe they will be negatively affected by the law.

The data also found that more than half of the customers surveyed who were unable to obtain small-dollar loans were forced to pay late fees or not pay their bills at all. A significant proportion of these customers also bounced checks or used overdraft protection through their bank or credit union, mirroring earlier findings.

The research shows that limiting access to small-dollar loans can and will have a disastrous impact on individuals' financial well-being. Tellingly, the same day Director Cordray made his ill-considered claim that consumers in the states that ban small-dollar loans "seem to get by just fine," at least 11,600 consumers in the 14 states without small-dollar loans went online to seek such loans, according to data my organization, the Community Financial Services Association of America, received directly from the non-prime credit bureau Clarity Services Inc.

Further data from this company show that in the fourth quarter of 2016, an estimated 2.7 million small-dollar loan applications were submitted online from residents in these 14 states. 

Even the CFPB itself repudiates Director Cordray's claim. Nearly one-third of consumer complaints that the CFPB has received into its complaint portal about small-dollar lending come from residents of the 14 states without legal, licensed lending, thus proving that bans do not remove small-dollar loans from the marketplace.

In fact, all these bans do is remove state regulations and consumer protections. The CFPB wants to eliminate small-dollar lending nationwide without addressing the issue of illegal, unlicensed lenders at all. 

The CFPB and its allies ignore research and data that show the consequence of their agenda on consumers who are in legitimate need of access to credit. Cordray's claim parallels Pew Advocacy's recent survey that attempts to delegitimize small-dollar loans through skewed and flawed methodology. Read more at THE HILL

Bill to loosen financial rules would save $24 billion - and slash consumer protection bureau funds

The House Republican legislation scaling back Dodd-Frank financial regulations would reduce federal budget deficits by $24.1 billion over the next decade - in part by slashing funding for the Consumer Financial Protection Bureau, according to an estimate by the nonpartisan Congressional Budget Office.

The Financial Choice Act, which was approved by a House committee this month, would subject the bureau to the congressional appropriations process instead of allowing it to draw the funds it needs directly from the Federal Reserve. That change would reduce federal spending by $6.9 billion from 2018 through 2027, the CBO said in a report issued Friday.

The bureau received $565 million in the 2016 fiscal year. Under current law, funding is expected to rise each year.

The House Republican legislation would reduce the bureau's funding to $485 million in 2018, and the CBO estimated that Congress would keep annual funding at about that level, adjusting for inflation, over the next decade.

The consumer bureau has recovered nearly $12 billion for 29 million consumers since it began operation in 2011, and it played a key role in sanctioning Wells Fargo & Co. for its unauthorized-accounts scandal.

Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group, said the legislation's backers want to "brutally" cut the bureau's budget.

"They place reducing the deficit over the needs of families and consumers," he said.

The legislation's author, Rep. Jeb Hensarling (R-Texas), has been an outspoken critic of the consumer bureau - he says its regulations on credit cards, mortgages and other lending reduce access to credit.

His bill, which faces tough odds in the Senate, would reduce the bureau's power, allow the president to replace its director for any reason and rename it the Consumer Law Enforcement Agency. Read more at LOS ANGELES TIMES

While You Weren't Looking, Trump Basically Killed Dodd-Frank

Trump campaigned on conflicting promises about big banks. One minute, he was going to stick it to the corrupt financial insiders who had wrecked the middle class. The next, he'd vow to liberate our benevolent princes of capital from crushing regulations Obama had cruelly imposed.

The rule is basically dead, Keefe Bruyette & Woods analyst Brian Gardner wrote in a note to clients Monday:  "Examiners can start giving banks the benefit of the doubt regarding compliance with Volcker almost immediately."

The Volcker Rule was conceived as an update to the Depression-era Glass-Steagall law, which banned traditional banks from engaging in risky, high-stakes securities ventures, which became the domain of investment banks, hedge funds and other firms that didn't rely on federal support. Until its repeal in the 1990s, Glass-Steagall put an end to many conflicts of interest that had plagued banking during the Roaring Twenties, and prevented government subsidies from flowing into speculative securities schemes, which made it harder for big crazy asset bubbles to accumulate.     Read more at HUFFPOST

The Case That Could Doom Elizabeth Warren's Wall Street Watchdog

Since the day it was created, Democrats loved it, Republicans hated it and Wall Street, at best, tolerated it.

The fate of the Consumer Financial Protection Bureau and its chief, Richard Cordray, is in the hands of a Washington appeals court that will hear arguments Wednesday. The CFPB asked the court to reconsider its 2016 decision involving the agency's punishment of New Jersey mortgage company PHH Corp. The outcome could take months. It's expected to provide ammunition for one side or the other in the years-long tug of war over the agency's existence.

Democrats defend the CFPB, the brainchild of Massachusetts Senator Elizabeth Warren, as a Wall Street watchdog necessary to advocate for ordinary Americans in the aftermath of the worst economic downturn in 75 years. They say it's returned nearly $12 billion to customers who've been shortchanged.

Republicans condemn the CFPB for snuffing economic activity by burdening lenders with red tape, and they've intensified their attacks since the election of President Donald Trump. They say that Cordray's power is unconstitutional -- he can be fired only by the president and only for cause -- and the agency oversteps its mandate. Last year, the appeals court agreed, while at the same time rejecting calls to dismantle the agency.

'Weaker Hand'

"The CFPB has the weaker hand right now,'' said Adam White, who studies financial regulation and law at the Hoover Institution, a conservative think tank. "If they lose any aspect of this case, Cordray is really in trouble. And no matter what, this case will continue to energize Congress.''

The judges could go so far as to call on the CFPB to be disbanded. The Trump administration has said that it wants the ability to dismiss Cordray at any time for any reason, but that the agency shouldn't be shut down entirely. Read more at BLOOMBERG

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